Amul Report

WHAT IS A COOPERATIVE

“A cooperative is an autonomous association of persons united voluntarily to meet their

common economic, social and cultural needs and aspirations through a jointly-owned and

democratically controlled enterprise”

They are business entities where people work together to solve common problems, seize

exciting opportunities and provide themselves with goods and services. A cooperative is

managed on the basis that the customers of a business are also the owners of the business.

Each customer is entitled to become a member of the cooperative society, thereby receiving the

benefit of success via a dividend payout.

The beginning of this great movement is dated back to 1844, when a group of men known as

the ‘Rochdale Pioneers’ began trade in grocery produces in England, based on a ‘new’

principles of fair prices for reliable quality goods. These organizations are better recognized

world wide, for their non-profit character and root level social functioning on voluntary basis.

Voluntary and open membership, democratic member control, member economic participation,

autonomy and independence, education, training and information, cooperation among

cooperatives and concern for community are the principles of cooperatives.

Self help, self responsibility, democracy, equality, equity and solidarity are the values of

cooperative organizations. In the tradition of its founders, the movement also follows such

ethical values as honesty, openness, social responsibility and caring for others. Needless to

say, it is a social movement and its growth will unanimously result in the wholesome growth of

the society.

Cooperatives in India

Cooperative movement in India has celebrated its centenary year of service recently. Indian

cooperatives are unique as they were initiated and supported by the government. Elsewhere it

had always been organized only by volunteer members with least or no government

intervention. In India it was introduced in 1904, as the planners of the country firmly believed

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that it could serve for national development and also could serve as a shied in protecting the

vulnerable section of populace, especially the farmers from certain social evils like agricultural

backwardness, poverty and rural indebtness.

Though they were initially organized only as the credit institutions, Indian cooperatives today,

tirelessly serve in endless areas of services. They serve in credit and non credit areas. They

deliver credits for agriculture as well as non agriculture purposes. They operate their businesses

in numerous non credit phases too. They work for milk producers, agricultural producers,

weavers, consumers, fishermen, coir makers, employees, students of universities and colleges,

and for many others.

Important Segments of Indian Cooperatives

• Cooperative education and training

• Agricultural credit cooperatives (production)

• Agricultural credit cooperatives (investments)

• Non agricultural credit cooperatives (urban banks)

• Cooperative marketing

• Tribal cooperatives

• Fertilizer cooperatives

• Consumer cooperatives

• Weaver cooperatives

• Sugar cooperatives

• Cooperative spinning mills

• Industrial cooperatives (non weavers)

• Dairy cooperatives

• Fisheries cooperatives

• Housing cooperatives

• Labour cooperatives

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• Poultry cooperatives

Development Of Cooperatives In India: State Wise Cooperatively Developed

States

Maharashtra, Karnataka, Kerala, Haryana, Punjab, Gujarat, Tamil Nadu, Union Territories of

Delhi Daman & Diu, Dadra & Nagar Haveli, Chandigarh and Pondicherry.

Cooperatively Under Developed States

Uttar Pradesh, Himachal Pradesh, Andhra Pradesh, Rajasthan, Orissa, Madhya Pradesh,

Uttaranchal, West Bengal, Union Territories of Andaman and Nicobar islands and Lakshdweep.

Cooperatively Least Developed States

Jharkhand, Assam, Meghalaya, Manipur, Tripura,Nagaland, Jammu & Kashmir, Mizoram, Bihar,

Arunachal Pradesh and Sikkim

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WHAT ARE THE CHALLENGES

1. Weak economic base

Most of the cooperative societies are not financially strong enough to deliver vibrant products

and services so as to ensure their market share. This is a basic challenge before the

cooperatives. They should be made financially self sustained by increasing the member

contribution in realistic terms. In addition, the Government or apex organizations like RBI,

NABARD, NAFED, NDDB, etc may issue the needful financial assistance to their respective

member cooperatives for this revival process. Such financial assistance to affiliated members by

their respective apex organizations is not at all a new suggestion, but financial assistance this

time, backed by professional management which will work for assured results, with given

responsibility to pay back them on pre determined dates, will make things better and productive.

2. Poor member participation

Attracting the attention of consumers / a member participant is the topmost as well as the

toughest job to be achieved. Thanks, to their root level functioning, cooperatives need not start

their marketing operations from square one. They are already familiar to all, now it is enough for

them to convert their products or services in to better brands and make their customers to

believe these brands are good. Effective changes in strategic and operational marketing plans

will help cooperatives for this. Sales promotional activities including powerful advertisements,

personal selling, disseminated selling etc, can help cooperatives to get their market domains

revived.

Members are least interested only because their societies are loss making. If a successful

manager/secretary is allowed to take whichever action he consider is good for growth and

success, and if he really prove his business successful member participation will be gained

automatically. When a strong set of customer bond is developed in the market private

competition can be handled boldly and effectively.

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3. Absence of common brands

To make Indian cooperative businesses successful worldwide, we need more number of

common brands which is absent today. Dairy products for example, bear individual names in

each state as ‘milma’ in kerala, ‘aavin’ in tamilnadu, ‘parag’ in uttarpradesh, etc and they are

well-known as cooperative products to people of that particular state only. Instead, if we could

integrate them under a common brand it will be more successful and beneficial. It will be

recognized as the cooperative product of India not only by Indians but also by the people

abroad. This will reduce the marketing overheads including advertise ment costs and will also

result in high reach as a single advertisement serves the purpose in place of many.

4. Uneconomic demand

Thanks to their PDS operations, they are usefully popular among the economically weaker

sections. But in open market their products are found less popular and least demanded. Many

cooperative stores do not offer shopping environment to a general consumer, i.e., their location,

infrastructure, interior, etc are not as great and convenient as of their private competitors. Since

research and development towards innovation is limited in cooperatives, they could offer

products only with limited quality and variety which reduces the buyer’s interest to pay a

shopping visit. Further, private businesses educate their customers through aggressive

advertisements which is lacking in cooperatives. Only limited advertisements are given for

cooperative products, for example ‘kool cafe’ of AMUL and Cooptex advertisements. Even they

are quality wise good enough, how shall they know our products unless we let them know?

5. Diluted management

The success of cooperative businesses lies in their democratic way of management. The

boards of cooperative societies in many places, for example in Tamilnadu, have been

liquidated, and the businesses are handed over to bureaucrats who are more administrative like

than being businesslike. But the member’s interest and participation is vital for success than any

other thing.

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When the members have no say in their own business, their patronizing can not be expected to

continue. It is after all their business, why they should be refused to administer it anyway? The

justification for such unhealthy official intervention is given on the basis that governments have

made huge financial investments in cooperatives. But this too, should be remodeled.

6. Losses and increasing NPAs

Cooperative businesses are loss making and dormant with few exemptions. Especially the ever

growing bad debts and non performing assets in credit cooperatives have made their financial

shape the worst. Increased number of willful defaulters, political interferences in loan recovery,

waiver practices of governments, weak and delaying recovery tribunal processes, ineffective

credit administration and supervision, artificial profit showing in the accounts, increased frauds

and misappropriation of money etc are the causes for their business losses. Lesser product

strength, inability to attract customer due to poor quality or limited variety, absence of effective

advertisements and successful marketing plans are the main reasons for their failures in non

credit businesses.

7. Corruption and frauds

Red tapism in business operations, vested interests of bureaucrats and increased

corruption and frauds are the other challenges which affect the efficiency of cooperative

businesses. Unless such offences are severely punished it will erode their financial soundness

like anything and will hinder their successful operation in the market. Regular audit of accounts,

sincere action against misappropriation of funds if any are mandatory to ensure their viability.

What morphing is needed?

Cooperatives today are viewed as failed institutions encircled by inefficiency and corruption.

This should be changed. People don’t believe what you intent to do, rather they judge you only

by the things what you have done. If cooperatives can give successful products, sure they will

believe cooperatives are kick and alive. But can cooperatives give such products? Yes they can.

All that needed is their morphing into new design of working so that these weaknesses can be

managed effectively.

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1. Raise your share capital:

Cooperatives in general, collect very nominal contribution (as low as Rs10) from members

towards share capital with a view to enable even the poor to become a member. This liberal

approach is jeopardy. It has neither helped the business to grow nor has empowered the

members. Rather it has eroded their bindings with the business. Since the money investment is

very meager their real involvement in business operations has become a question mark. So

raising share value will result both in increased member involvement as well as business

soundness. For example, Oneota a successful consumer cooperative store in England collects

$150 per share from their members so as to make sure their financial stature strong and

healthy. Since the money invested is higher, members show real involvement in business

operations and also receive higher dividend.

2. Make your shop attractive:

Cooperatives banks attract very limited deposits whereas the local commercial banks could

attract a lot. The products in consumer cooperative stores are quality assured and honestly

priced; still their sales curve falls lower than the sales curves of the local private shops, why?

The answer is their location and infrastructure. If you really wanna be successful, be near to

your customer and present yourself in an attractive way. Unless their infrastructure gives a

sense of safety and quality in the minds of their customers, cooperative businesses can not

attract the modern day customers. So designing your location in a easily accessible area is

essential.

3. Alter your working pattern

Cooperative business houses especially the consumer stores and marketing cooperatives

whose business is selling something to consumers, can not run their businesses as government

offices.

They should be available to their customers at the place and time convenient to them. Some

time they may need to start their business so early in the morning or stay late in the nights. In

order to keep their response positive and continuous, cooperatives should offer them a

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wonderful shopping experience by introducing self service systems, computerized billing,

packing and door delivery for bulk buying etc. Member’s feed back related to non availability of

certain goods, quality complaints, price variations, service complaints etc should be viewed and

followed up seriously. In short the customer should be made to believe that ‘whatever product

the customer names, he will get it from cooperatives at a fair price with reasonable quality’.

4. Be professional

The managers of cooperative businesses should be more professional in their

market operations.

They should be vigil enough to trace new marketing opportunities as and when they appear and

make use of them for their further growth. They should make brilliant purchase decisions by

studying the market trends, for example investing more in fast moving products may increase

the returns. Quality should be the watchword in cooperatives and steps should be taken to

reduce the wastages and cost of goods sold. In short, the manager / secretary of a cooperative

store should deliver his service in a professional way to prove himself competent and his

business successful.

5. Educate them the reality

Cooperatives are perceived as government institutions by many. Even the members don’t

understand them as their own business units. This ignorance or myopia is the reason why the

members of the cooperative themselves are not loyal to the business, the worst part of it is,

many a time they readily enjoy the benefits and willfully refuse to pay back their liabilities. All

this is because the wrong understanding of the system. Unless they are educated the original

nature of the business, realize the need for their own active participation in the business

operations, understand the meaning of patronage dividend all other efforts will remain only

futile. Publicizing the movement among people, cultivating its values and characters in the

tender minds of children can help introducing the great movement to all in a constructive way.

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INDIAN BRANDED & PACKAGED FOODS INDUSTRY

With the overwhelming successes of the Green and White Revolutions, India is now fervently

poised for the Food Revolution that will ensure agricultural diversification and large investments

in food processing. The entry of multinationals, aggressive rise of commodity branding and low

cost of technology are changing the economics of the Indian food industry. The rise of

aggressive regional players making forays into categories where entry barriers are low and a

boom in Indian FMCG markets and the rising need for these products are the key reasons for

this growth in food business. Indian agriculture is in the throes of a paradigm shift, thanks to the

structural changes in the Indian economy. With the country achieving self-sufficiency in grains

production, emphasis has changed from subsistence farming to commercialization, opening up

vast opportunities for value-addition, packaging and exports, with a strikingly high level of

technological involvement. The holistic concept of food security, however, has two dimensions –

availability of food and access to food. While the former has been achieved, the same is not the

case with the latter. Despite bumper crops, distribution of food grains continues to be faulty –

almost 30% of the food produced in the country is wasted. In such a scenario, it is important for

us to reorient our historical agricultural policy framework – from managing shortages to

promoting efficiencies and value addition. Moreover, there is a need to increase the range of

foods available to improve overall nutrition. The benefits in terms of health, vitality and

productivity are obvious, and cannot be underestimated. F&B News, India’s first newspaper in

this sector, provides a comprehensive view of the food and beverage industry The Indian food

market is approximately Rs 2,50,000 crore ($69.4 billion), of which value-added food products

comprise Rs 80,000 crore ($22.2 billion). Despite food production in the country is expected to

double by the year 2020, not much attention has been given to the growth of this vital industry,

with no standard publication highlighting the importance of this sector. F&B News aims to cover

news, events, research, innovations, new products & processes, marketing and so on (both

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national and international), which will broadly cover around 75 key areas in the food, beverage

and its allied segments. These include food processing, bakery, confectionery, dairy, meat &

poultry, fruits & vegetables, fisheries (including aquaculture), food ingredients, grocery retail,

packaging, alcoholic beverages, soft drinks and bottled drinking water, canning, fats and oils,

filters and filtering materials, flavours and flavour enhancers, nutrient additives, frozen

food/refrigeration and thermo processing, among others. With food production expected to

double by 2020, large investments are already going into food and food processing

technologies, skills and equipment. Given the changing industry dynamics, it is paramount for

F&B News to highlight news, issues and events in the sector, some of which are briefly

discussed below.

The food processing industry is witnessing a 20% annual growth rate and, consequently,

the demand for processed foods and beverages in the country is constantly on the rise.

There are 300 million upper-and-middle-class consumers of processed and packaged

food in the country, and another 200 million are expected to shift by 2010. In the

scenario, the food processing industry has been accorded priority status by the new

government with Subodh Kant Sahai holding independent charge of the Ministry of Food

Processing Industries.

Processed foods are primarily derived from agricultural commodities, which often incur

multiple taxes at various stages. This multiple taxation has a cascading effect on prices.

Moreover, there is a wide variation in the level of taxes across states, which creates a

barrier to the free flow of materials from the farm to the factory and ultimately to the

consumers.

Post-Green Revolution, it is essential that agricultural research reoriented to address

new challenges. As the existing crop seeds have reached yield saturation, there is an

urgent need to evolve transgenic varieties through the application of biotechnology, RNA

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use, and molecular biology. These varieties should have high yield, short maturity, pest

and disease resistance, stress tolerance, and wider adaptability.

With the help of indigenous breeds improvement programme, nutritional research and

improved cost-effective vaccine programmes, India has achieved the distinction of being

the highest milk producing country in the world. Similarly, with processes in place to

improve quality of marine products for internal and export markets, India is the seventh

largest producer of fish in the world and is ranked second in inland fish production.

Special foods are available for every patient today, be it hypertension, diabetes, obesity,

or even weight reduction. For instance, diet food and nutraceuticals are the latest fad.

The market for sugar-free confectionery and snack products is growing steadily.

Motivated by a desire for maximum indulgence coupled with a wish for calorie control

and health benefits, consumers are increasingly choosing sugar-free and sugar-reduced

products.

Packaging of food products has become important in order to ensure safety and hygiene

and to eliminate the possibility of adulteration. In some cases, more than 50% of the

price of a product goes towards packaging. Good packaging will greatly catalyze the

development of a food-processing sector. However, packaging industry is yet to achieve

international standards in the country.

While F&B News will focus on all these issues, it will also comment on the government

policies, rules and regulations. There will be regular columns on food security and safety,

research, new products and processes, innovations, new technology and equipment, export and

import, marketing, international developments, reports on trade fairs and seminars and

interviews and special features by eminent people in the industry.

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COOPERATIVES AND THE GLOBAL DAIRY INDUSTRY

Three broad questions have intrigued researchers and practitioners on cooperatives: what are

the objectives of cooperatives, what determines the success and failure of cooperatives and

how do cooperatives act as organizations of social and economic change. While most of the

observations are based on normative judgments of what the cooperatives are supposed to do,

some studies reflect the true behavior of agents within a cooperative framework thereby making

the debate on cooperatives more complex but also interesting. To these themes we add another

question that reflects in some ways our own enquiry through this paper: are mechanisms of

cooperation that cooperatives employ any different from those used by other industrial

organizations?

Traditionally, cooperatives have been established to serve the needs of its members in order to

maximize their returns. Governments have usually seen these organizations as effective

mechanisms for delivering their own programmes (e.g., sector development or poverty

reduction, etc.). Researchers have looked at cooperatives as channels for re-distributing wealth,

improving the opportunities for the weaker sections of the society, alternative institutions for

property ownership, efforts in democratic and participative governance of organizations etc. (this

discussion draws from Shah, 1995). In that, the cooperatives have often sought protection of

sorts from uncertainties in the market place. Globally, modern day cooperatives are

agglomeration of many such small groupings that serve some of the above objectives but have

now moved from being protected entities to becoming market driven. This makes such

cooperatives an interesting organizational alternative to traditional business enterprises (i.e.,

investor owned firms) in terms of concern for shareholders, distributional effectiveness and

ability to provide product/service variety.

In emerging economies, cooperatives have been used as institutions to organize marginal

producers thereby providing scale effects to a network of such producers. Sometimes, it is the

government that organizes these marginal producers and may also manage the collective (as in

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various cooperatives in former Soviet Union and Africa). On other occasions, producers

themselves come together to produce and distribute their own products (as in the case of

AMUL, majority of cooperatives in North America etc.). While control and subsidies from the

government distort the performance of former, producer-driven cooperatives have to develop

systems and processes that respond to market requirements and be competitive. In that, the

determinants of success for this kind of cooperatives are no different from those of other

commercial organizations. Moreover, they recognize that in order to optimize the objective

function of the marginal producers, they have to serve the market very effectively. Cooperatives

are, however, different from other commercial organizations in one respect – they are bound to

serve the suppliers (i.e., the producers of goods & services who happen to be the members of

the cooperatives) in good and bad times. In that, they present an interesting model to other

commercial organizations on strategic management of resources and their conservation.

Globally, cooperatives have played the role of preventing market failures for small producers

especially in the dairy industry. Traditionally, a large number of these cooperatives have had

small membership and produced predominantly raw products (i.e., fluid milk) or products with

some value addition (i.e., dry powder, butter etc.). This situation has been changing dramatically

in the last decade and especially in the last three years. There has been a spate of mergers all

around the world to create fewer but larger dairy cooperatives. In many cases, these

cooperatives look very different from the merged entities. Cooperative dairies that operate with

small membership have retained a certain focus (i.e., geographical or product related) in their

offerings9. There have been several factors driving the restructuring of the dairy business (which

has chiefly been organized around cooperative principles). These include efficiencies in

managing fewer large plants versus a number of under-utilized small plants, need for more milk

supply (and declining membership), need to offer wide variety, improvements in trucking & milk

handling thereby facilitating long hauls, opening of new international markets (also markets for

new products), seeking marketing clout and need to bring investment from outside the

cooperatives. In USA, for instance, there were 592 cooperatives (with a membership of 281,065

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producers) that marketed milk to plants and handlers in 1973. This number reduced to 226 (with

87,938 members) in 1997. However, the share of milk delivered by the cooperatives increased

by 9 percent during this period though the share of dairy sales of small cooperatives reduced

from 43.8 percent in 1975 to about 30 per cent in 1998 (Blayney and Manchester, 2000). The

two largest dairy cooperatives in the US, Dairy Farmers of America and Land O’Lakes had

annual sales of US$ 7.9 and 5.1 billion respectively. Dairy

Farmers of America was formed by the merger of four large cooperatives in the US in 1998. It

consists of 25,499 members across 45 states of USA. Consolidation in cooperatives during the

last five years was also in anticipation of (and reaction to) the consolidated Federal Milk

Marketing Order of 2000 which removed geographical anomalies in minimum support prices for

dairy products hence reduced the need to locate spatially distributed processing centers to take

advantage of varying prices. It helped dairy cooperatives to forge alliances with firms in various

regions.

European (and especially Scandinavian) dairy cooperatives have also seen tremendous

consolidation. Danish cooperatives, mostly producers’ cooperatives, have often faced difficulties

in raising capital internally for investment (though government support has been quite strong on

this count) and have been re-structuring since mid-70s (Hansen et al. 1980). Dairy coops in

Denmark have reduced to 45 units in 2002 from 1500 in 1930s with one large dairy processing

90 per cent of the available milk. The Danish Dairy Board, however, invests in R&D, allots quota

for milk supply to individual farms, regulates prices and quality, and supports the efforts of the

cooperatives in international markets. It believes that its competition is from dairies outside

Denmark. Similar has been the experience of dairy farmers in other parts of Europe with a

higher involvement of government in reshaping the structure of the industry. Many Irish

cooperatives have, however, converted to non-cooperative forms (Hamm, 2001). Outside

Europe and USA, the experience of dairy cooperatives in New Zealand is instructive. The New

Zealand Dairy Board (NZDB) zealously guards the structure of the industry, which had an

annual worldwide sale of NZ$3.5 billion in 1996. Dairy cooperatives collect milk from individual

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farmers and sell processed products in the domestic markets and to NZDB for exports. Akoorie

and Scott-Kennel (1999) argue that this structure looks more like strategic partnership between

producers and the board (the global marketing arm) with the later providing capital for growth

and innovation. Interestingly, the form that a producing organization should take and the

relationship that it should have with its marketing has been the center of debate in managing

dairy cooperatives. AMUL in India has learnt from many of these experiences and has been

influenced by practices in dairies around the world especially in its formative years. It has,

however, formed it own organizational structure (i.e., AMUL is a cooperative of village

cooperatives) to bring about a change in the lives of marginal farmers of India.

The AMUL experience has attracted considerable interest from the development community –

predominantly anthropologists, development & agriculture economists, and political scientists.

Key areas of their enquiry have been the role of AMUL in reducing social and economic

inequality

in the region of the cooperative, the sociology of cooperation, interface of the dairy cooperative

and the rural power structure, relation of the State and the Cooperative and the role of

government in its growth (interestingly, AMUL has successfully managed to exercise its

independence from the government unlike other cooperatives in India), elements & replicability

of the cooperative movement at Anand, cost effectiveness of subsidies to AMUL (in its initial

years) etc. A few studies have evaluated the operational effectiveness of the operations at

AMUL. Studies have reported usage of mobile veterinary dispensaries, wireless sets to link

mobile units to service centers as early 1951, developing a programme of cross breeding of

cows in early 1970s etc. that have led to a phenomenal rise in productivity of milk (Patel, 1988).

We have, however, not come across any research paper or study that looks at the entire supply

chain to understand the role of managerial practices in achieving its objectives successfully.

There have been no studies that look at managerial practices, efficiency and performance of

cooperatives either. We now present, how AMUL developed a robust organization based on

sound values and commercial interests.

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AMUL : THE COMPLETE STORY

Introduction

Since the turn of 19th century, Cooperatives have existed as dominant forms of organization in

the dairy industry around the world. Sometimes they have played the role of developing infant

industry while at other times they have been used to strengthen weak production bases in an

environment where market failures tend to be higher for marginal producers. In some other

cases, a network of small producers have organized themselves to better market their products.

Management of these cooperatives have also led to some interesting managerial insights for

managers in emerging as well as developed economies.

Large emerging economies, e.g., India and China, have complexities that range from

development of markets (where the largest segment of population is the one which has low

purchasing power) to integration of low cost suppliers who are predominantly very small. For

firms that aspire to conduct substantial business in such markets, such complexities have to be

recognized and then overcome. The challenge is to understand the linkages between markets

and the society. This would also require development of a new business model that helps a firm

grow in such environments. This paper is about one such successful model. The Kaira District

Milk Cooperative Union or AMUL in India is an example of how to develop a network of firms in

order to overcome the complexities of a large yet fragmented market like those in emerging

economies by creating value for suppliers as well as the customers. AMUL has led the milk

dairy revolution in India that has now emerged as one of the largest milk producers in the world.

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In this article we will describe the breakthrough vision that led to the simultaneous development

of the market and supply side through a process of social development and education at AMUL.

Clearly, implementation of this vision in a competitive environment and maintaining sustained

growth and profitability requires development of competitiveness on several dimensions and

operational effectiveness. This article provides insights into management of very large supply

chains by adapting and integrating a variety of strategies and techniques. This includes building

networks, developing trust & values in the network, developing fair mechanisms for sharing

benefits across the supply chain, coordination for operational effectiveness, innovation and new

technology for gaining competitiveness. It is noteworthy that these successes were achieved

within the framework of a network of cooperatives organized in a hierarchical manner. There are

many lessons in AMUL’s success not only for the cooperative sector but also for firms who

intend to do business in emerging markets.

The Amul Story

The Kaira District Cooperative Milk Producers’ Union Limited was established on December 14,

1946 as a response to exploitation of marginal milk producers in the city of Anand (in Kaira

district of the western state of Gujarat in India) by traders or agents of existing dairies.

Producers had to travel long distances to deliver milk to the only dairy, the Polson Dairy in

Anand – often milk went sour, especially in the summer season, as producers had to physically

carry milk in individual containers. These agents decided the prices and the off-take from the

farmers by the season. Milk is a commodity that has to be collected twice a day from each

cow/buffalo. In winter, the producer was either left with surplus unsold milk or had to sell it at

very low prices. Moreover, the government at that time had given monopoly rights to Polson

Dairy (around that time Polson was the most well known butter brand in the country) to collect

milk from Anand and supply to Bombay city in turn (about 400 kilometers away). India ranked

nowhere amongst milk producing countries in the world in 1946.

The producers of Kaira district took advice of the nationalist leaders, Sardar Vallabhbhai Patel

(who later became the first Home Minister of free India) and Morarji Desai (who later become

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the Prime Minister of India). They advised the farmers to form a cooperative and supply directly

to the Bombay Milk Scheme instead of selling it to Polson (who did the same but gave low

prices to the producers). Thus the Kaira District Cooperative was established to collect and

process milk in the district of Kaira. Milk collection was also decentralized, as most producers

were marginal farmers who would deliver 1-2 litres of milk per day. Village level cooperatives

were established to organize the marginal milk producers in each of these villages. The first

modern dairy of the Kaira Union was established at Anand (which popularly came to be known

as AMUL dairy after its brand name). The new plant had the capacity to pasteurise 300,000

pounds of milk per day, manufacture 10,000 pounds of butter per day, 12,500 pounds of milk

powder per day and 1,200 pounds of casein per day. Indigenous R&D and technology

development at the Cooperative had led to the successful production of skimmed milk powder

from buffalo milk – the first time on a commercial scale anywhere in the world. The foundations

of a modern dairy industry in India had just been laid as India had one of the largest buffalo

populations in the world.

We move to year 2000. The dairy industry in India and particularly in the State of Gujarat looks

very different. India has emerged as the largest milk producing country in the world. Gujarat

emerges as the most successful State in terms of milk and milk product production through its

cooperative dairy movement. The Kaira District Cooperative Milk Producers’ Union Limited,

Anand becomes the focal point of dairy development in the entire region and AMUL emerges as

one of the most recognized brands in India, ahead of many international brands.

Starting with a single shared plant at Anand and two village cooperative societies for milk

procurement, the dairy cooperative movement in the State of Gujarat had evolved into a

network of 2.12 million milk producers (called farmers) who are organized in 10,411 milk

collection independent cooperatives (called Village Societies). These Village Societies (VS)

supply milk to thirteen independent dairy cooperatives (called Unions). AMUL is one such

Union. Milk and milk products from these Unions are marketed by a common marketing

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organization (called Federation). Figure 1 gives the hierarchical structure of this extensive

network of cooperatives. Gujarat Cooperative Milk Marketing Federation or GCMMF is the

marketing entity for products of all Unions in the State of Gujarat. GCMMF has 42 regional

distribution centers in India, serves over 500,000 retail outlets and exports to more than 15

countries. All these organizations are independent legal entities yet loosely tied together with a

common destiny! (In a recent survey GCMMF was ranked amongst the top ten FMCG firms in

the country while AMUL was rated the second most recognized brand in India amongst all

Indian and MNC offerings). Interestingly, the Gujarat movement spread all over India and a

similar structure was replicated (all are at different levels of achievement but their trajectory

appears to be quite similar). Two national organizations, the National Dairy Development Board

(NDDB) and the National Co-operative Dairy Federation of India (NCDFI) were established to

coordinate the dairy activities through cooperatives in all the States of the country. The former

provides financing for development while the latter manages a national milk grid and

coordinates the deficit and surplus milk and milk powder across the states of India. In the early

nineties, AMUL was asked by the Government of Sri Lanka to establish a dairy on similar lines

in Sri Lanka. Interestingly, while Polson folded up sometimes in 1960s, the cooperatives are

faced with new competition in liberalizing India – from multi-national corporations (MNCs) that

brought in new and improved product portfolio, international network and immense financial

support. The Cooperatives face new challenges that test the robustness of their approach and

their commitment to the movement and a new style of management thinking.

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Today AMUL is a symbol of many things. Of a promise to member farmers who are assured a

guaranteed purchase of all the milk that they produce at pre-determined prices. Of high-quality

products sold at reasonable prices to consumers. Of developing and coordinating a vast co-

operative network. Of making a strong business proposition out of serving a large number of

small and marginal suppliers. Of the triumph of indigenous technology. Of the marketing savvy

of a farmers' organisation. In the remaining part of the paper, we first review the role that

cooperatives have played in the development of dairy industry globally and how is this sector

adjusting to new global challenges. Next, we look at AMUL within this context and highlight their

journey towards excellence. Specifically, we study how AMUL achieved this exalted status, what

were the ingredients of its success, how did the belief in cooperation transform the business

environment and the lives of people, and what lessons does it hold for other businesses.

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Figure 1: Dairy Cooperative Structure and details for State of Gujarat

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Amul: The origin

The mighty Ganges at its origin is but a tiny stream in the Gangotri ranges of the Himalayas.

Similar is the story of Amul which inspired 'Operation Flood' and heralded the 'White Revolution'

in India. It began with two village cooperatives and 250 liters of milk per day, nothing  but a

trickle compared to the flood it has become today. Today Amul collects, processes and

distributes over a million liters of milk and milk products  per day, during the peak, on behalf of

more than a thousand village cooperatives owned by half a million farmer members. Further, as

Ganga-ma carries the aspirations of generations for moksha, Amul too has become a symbol of

the aspirations of millions of farmers.Creating a pattern of liberation and self-reliance for every

farmer to follow. 

The start of a revolution

The revolution started as an awareness among the farmers that grew and matured into a protest

movement and the determination to liberate themselves. Over four decades ago, the life of a

farmer in Kaira District was very much like that of his counterpart anywhere else in India. His

income was derived almost entirely from seasonal crops. The income from milch buffaloes was

undependable. The marketing and distribution system for the milk was controlled by private

traders and middlemen. As milk is perishable, farmers were compelled to sell it for whatever

they were offered. Often, they had to sell cream and ghee at throwaway prices. In this situation,

the one who gained was the private trader. Gradually, the realization dawned on the farmers

that the exploitation by the trader could be checked only if marketed their milk themselves. In

order to do that they needed to form some sort of an organization. This realization is what led to

the establishment of the Kaira District Cooperative Milk Producers' Union Limited (popularly

known as Amul) which was formally registered on December 14, 1946. The Kaira Union began

pasteurizing milk for the Bombay Milk Scheme in June 1948. An assured market proved a great

incentive to the milk producers of the district. By the end of 1948, more than 400 farmers joined

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in more village societies, and the quantity of milk handled by one Union increased from 250 to

5,000 liters a day.

Obstacles: Springboards for success.

Each failure, each obstacle, each stumbling block can be turned into a success story. In the

early years, Amul had to face a number of problems. With every problem came opportunity. A

chance to turn a negative into a positive. Milk by products and supplementary yield which

suffered from the same lack of marketing and distribution facilities became encumbrances.

Instead of being bogged down by their fate they were used as stepping stones for expansion.

Backward integration of the process led the cooperatives to advances in animal husbandry and

veterinary practice.

Milk by products: An excuse to expand.

The response to these provided stimulus for further growth. For example, as the movement

spread in the district, it was found that the Bombay Milk Scheme could not absorb the extra milk

collected by the Kaira Union in winter, when the production on an average was 2.5 times more

than in summer. Thus, even by 1953, the farmer-members had no assured market for the extra

milk produced in winter. They were again forced to sell a large surplus at low rates to the

middlemen. The remedy was to set up a plant to process milk into products like butter and milk

powder. A Rs 5 million plant to manufacture milk powder and butter was completed in 1955. In

1958, the factory was expanded to manufacture sweetened condensed milk. Two years later, a

new wing was added for the manufacture of 2500 tons of roller-dried baby food and 600 tons of

cheese per year, the former based on a formula developed with the assistance of Central Food

Technological Research Institute (CFTRI), Mysore. It was the first time anywhere in the world

that cheese or baby food was made from buffalo milk on a large, commercial scale. Another

milestone was the completion of a project to manufacture balanced cattle feed. The plant was

donated by OXFAM under the Freedom From Hunger Campaign of the FAO.

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To meet the requirement of milk powder for the Defense, the Kaira Union was asked by the

Government of India in 1963 to setup additional milk drying capacity. A new dairy capable of

producing 40 tons of milk powder and 20 tons of butter a day was speedily completed. It was

declared open in 1965. The Mogar Complex where high protein weaning food, chocolate and

malted food are being made was another initiative by Amul to ensure that while it fulfilled the

social responsibility to meet the demand for liquid milk, its members were not deprived of the

benefits to be had from the sale of high value-added products.

Cattle: From stumbling blocks to building blocks.

Traditionally dairying was a subsidairy occupation of the farmers of Kaira. However, the

contribution to the farmer's income was not as prominent as his attachment to dairying as a

tradition handed down from one generation to the next. The milk yield from animals, which were

maintained mainly on the by products of the farm, was decidedly low. That together with the lack

of facilities to market even the little produced rendered the scientific practice of animal

husbandry irrational as well as unaffordable.  The return on the investment as well as the

prospects of being able to market the product looked very bleak. It was a vicious cycle

reinforced by generations of beliefs.

The Kaira Union broke the cycle by not only taking upon themselves the responsibility of

collecting the marketable surplus of milk but also provided the members with every provision

needed to enhance production. Thus the Kaira Union has full-fledged machinery geared to

provide animal health care and breeding facilities. As early as late fifties, the Union started

making high quality buffalo semen. Through village society workers artificial insemination

service was made available to the rural animal population. The Union started its mobile

veterinary services to render animal health care at the farmers' doorstep. Probably for the first

time in the country, veterinary first aid services, by trained personnel, were made available in

the villages.The Union's 16 mobile veterinary dispensaries are manned by fully qualified staff.

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All the villages are visited bi-monthly, on a predetermined day, to provide animal health care. A

24-hour Emergency Service is also available at a fee (Rs. 35 for members and Rs. 100 for non-

members). All the mobile veterinary vans are equipped with Radio Telephones.

The Union runs a semen production center where it maintains high pedigreed Surti buffalo bulls,

Holstein Friesian bulls, Jersey bulls and 50 per cent crossbred bulls. The semen obtained from

these bulls is used for artificial breeding of buffaloes and cows belonging to the farmer members

of the district. The artificial insemination service has become very popular because it regulates

the frequency of calving in cows and buffaloes thus reducing their dry period. Not only that, a

balanced feed concentrate is manufactured in the Union's Cattle Feed Plant and sold to the

members through the societies at cost price.

Impressive though its growth, the unique feature of the Amul sagas did not lie in the extensive

use of modern technology, nor the range of its products, not even the rapid inroads it made into

the market for dairy products. The essence of the Amul story lies in the breakthrough it achieved

in modernizing the subsistence economy of a sector by organizing the rural producers in the

areas.

The Kaira experiment: A new beginning in more ways than one.

A system which involves participation of people on such a large magnitude does not confine

itself to an isolated sector. The ripples of its turbulence affect other areas of the society as well.

The cooperatives in the villages of Kaira are contributing to various desirable social changes

such as:

The yearly elections of the management committee and its chairman, by the members,

are making the participants aware of their rights and educating them about the

democratic process.

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Perpetuating the voluntary mix of the various ethnic and social groups twice-a-day for

common causes and mutual betterment has resulted in eroding many social inequilibria.

The rich and the poor, the elite and the ordinary come together to cooperate for a

common cause.

Live exposure to various modern technologies and their application in day-to-day life has

not only made them aware of these developments but also made it easier for them to

adopt these very processes for their own betterment. One might wonder whether the

farmer who knows almost everything about impregnating a cow or buffalo, is also equally

aware of the process in the humans and works towards planning it.

More than 900 village cooperatives have created jobs for nearly 5000 people in their

own villages -- without disturbing the socio-agro-system -- and thereby the exodus from

the rural areas has been arrested to a great extent.

The income from milk has contributed to their household economy. Besides, women,

who are the major participants, now have a say in the home economy.

Independent studies by various individuals and institutions have shown that as high as 48 per

cent of the income of the rural household in Kaira District is being derived from dairying. Since

dairying is a subsidairy occupation for the majority of the rural population, this income is helping

these people not only to liberate themselves from the stronghold of poverty but also to elevate

their social status.

Developing demand

At the time Amul was formed, consumers had limited purchasing power, and modest

consumption levels of milk and other dairy products. Thus Amul adopted a low-cost price

strategy to make its products affordable and attractive to consumers by guaranteeing them

value for money.

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Introducing higher value products

Beginning with liquid milk, GCMMF enhanced the product mix through the progressive addition

of higher value products while maintaining the desired growth in existing products.

Despite competition in the high value dairy product segments from firms such as Hindustan

Lever, Nestle and Britannia, GCMMF ensures that the product mix and the sequence in which

Amul introduces its products is consistent with the core philosophy of providing milk at a basic,

affordable price.

The distribution network

Amul products are available in over 500,000 retail outlets across India through its network of

over 3,500 distributors. There are 47 depots with dry and cold warehouses to buffer inventory of

the entire range of products.

GCMMF transacts on an advance demand draft basis from its wholesale dealers instead of the

cheque system adopted by other major FMCG companies. This practice is consistent with

GCMMF's philosophy of maintaining cash transactions throughout the supply chain and it also

minimizes dumping.

Wholesale dealers carry inventory that is just adequate to take care of the transit time from the

branch warehouse to their premises. This just-in-time inventory strategy improves dealers'

return on investment (ROI). All GCMMF branches engage in route scheduling and have

dedicated vehicle operations.

Umbrella brand

The network follows an umbrella branding strategy. Amul is the common brand for most

product categories produced by various unions: liquid milk, milk powders, butter, ghee, cheese,

cocoa products, sweets, ice-cream and condensed milk.

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Amul's sub-brands include variants such as Amulspray, Amulspree, Amulya and Nutramul. The

edible oil products are grouped around Dhara and Lokdhara, mineral water is sold under the Jal

Dhara brand while fruit drinks bear the Safal name.

By insisting on an umbrella brand, GCMMF not only skillfully avoided inter-union conflicts but

also created an opportunity for the union members to cooperate in developing products.

Managing the supply chain

Even though the cooperative was formed to bring together farmers, it was recognised that

professional managers and technocrats would be required to manage the network effectively

and make it commercially viable.

Coordination

Given the large number of organisations and entities in the supply chain and decentralised

responsibility for various activities, effective coordination is critical for efficiency and cost control.

GCMMF and the unions play a major role in this process and jointly achieve the desired degree

of control.

Buy-in from the unions is assured as the plans are approved by GCMMF's board. The board is

drawn from the heads of all the unions, and the boards of the unions comprise of farmers

elected through village societies, thereby creating a situation of interlocking control.

The federation handles the distribution of end products and coordination with retailers and the

dealers. The unions coordinate the supply side activities.

These include monitoring milk collection contractors, the supply of animal feed and other

supplies, provision of veterinary services, and educational activities.

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Managing third party service providers

From the beginning, it was recognised that the unions' core activity lay in milk processing and

the production of dairy products. Accordingly, marketing efforts (including brand development)

were assumed by GCMMF. All other activities were entrusted to third parties. These include

logistics of milk collection, distribution of dairy products, sale of products through dealers and

retail stores, provision of animal feed, and veterinary services.

It is worth noting that a number of these third parties are not in the organized sector, and many

are not professionally managed with little regard for quality and service.

This is a particularly critical issue in the logistics and transport of a perishable commodity where

there are already weaknesses in the basic infrastructure.

Establishing best practices

A key source of competitive advantage has been the enterprise's ability to continuously

implement best practices across all elements of the network: the federation, the unions, the

village societies and the distribution channel.

In developing these practices, the federation and the unions have adapted successful

models from around the world. It could be the implementation of small group activities or quality

circles at the federation. Or a TQM program at the unions. Or housekeeping and good

accounting practices at the village society level. More important, the network has been able to

regularly roll out improvement programs across to a large number of members and the

implementation rate is consistently high. For example, every Friday, without fail, between 10.00

a.m. and 11.00 a.m., all employees of GCMMF meet at the closest office, be it a department or

a branch or a depot to discuss their various quality concerns. Each meeting has its pre-set

format in terms of Purpose, Agenda and Limit (PAL) with a process check at the end to record

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how the meeting was conducted. Similar processes are in place at the village societies, the

unions and even at the wholesaler and C&F agent levels as well. Examples of benefits from

recent initiatives include reduction in transportation time from the depots to the wholesale

dealers, improvement in ROI of wholesale dealers, implementation of Zero Stock Out through

improved availability of products at depots and also the implementation of Just-in-Time in

finance to reduce the float. Kaizens at the unions have helped improve the quality of milk in

terms of acidity and sour milk. (Undertaken by multi-disciplined teams, Kaizens are highly

focussed projects, reliant on a structured approach based on data gathering and analysis.) For

example, Sabar Union's records show a reduction from 2.0% to 0.5% in the amount of sour

milk/curd received at the union. The most impressive aspect of this large-scale roll out is that

improvement processes are turning the village societies into individual improvement centers.

Technology and e-initiatives

GCMMF's technology strategy is characterized by four distinct components: new products,

process technology, and complementary assets to enhance milk production and e-commerce.

Few dairies of the world have the wide variety of products produced by the GCMMF

network. Village societies are encouraged through subsidies to install chilling units. Automation

in processing and packaging areas is common, as is HACCP certification. Amul actively

pursues developments in embryo transfer and cattle breeding in order to improve cattle quality

and increases in milk yields. GCMMF was one of the first FMCG (fast-moving consumer goods)

firms in India to employ Internet technologies to implement B2C commerce. Today customers

can order a variety of products through the Internet and be assured of timely delivery with cash

payment upon receipt. Another e-initiative underway is to provide farmers access to information

relating to markets, technology and best practices in the dairy industry through net enabled

kiosks in the villages. GCMMF has also implemented a Geographical Information System (GIS)

at both ends of the supply chain, i.e. milk collection as well as the marketing process. Farmers

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now have better access to information on the output as well as support services while providing

a better planning tool to marketing personnel.

AMUL BUTTER GIRL

The moppet who put Amul on India's breakfast table

50 years after it was first launched, Amul's sale figures have jumped from 1000 tonnes a year in

1966 to over 25,000 tonnes a year in 1997. No other brand comes even close to it. All because

a thumb-sized girl climbed on to the hoardings and put a spell on the masses.

Summer of 1967. A Charni Road flat. Mrs. Sheela Mane, a 28-year-old housewife is out in the

balcony drying clothes. From her second floor flat she can see her neighbours on the road.

There are other people too. The crowd seems to be growing larger by the minute. Unable to

curb her curiosity Sheela Mane hurries down to see what all the commotion is about. She

expects the worst but can see no signs of an accident. It is her four-year-old who draws her

attention to the hoarding that has come up overnight. "It was the first Amul hoarding that was

put up in Mumbai," recalls Sheela Mane. "People loved it. I remember it was our favourite topic

of discussion for the next one week! Everywhere we went somehow or the other the campaign

always seemed to crop up in our conversation."

Call her the Friday to Friday star. Round eyed, chubby cheeked, winking at you, from

strategically placed hoardings at many traffic lights. She is the Amul moppet everyone loves to

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love (including prickly votaries of the Shiv Sena and BJP). How often have we stopped, looked,

chuckled at the Amul hoarding that casts her sometime as the coy, shy Madhuri, a bold

sensuous Urmila or simply as herself, dressed in her little polka dotted dress and a red and

white bow, holding out her favourite packet of butter.

For 30 odd years the Utterly Butterly girl has managed to keep her fan following intact. So much

so that the ads are now ready to enter the Guinness Book of World Records for being the

longest running campaign ever. The ultimate compliment to the butter came when a British

company launched a butter and called it Utterly Butterly, last year.

It all began in 1966 when Sylvester daCunha, then the managing director of the advertising

agency, ASP, clinched the account for Amul butter. The butter, which had been launched in

1945, had a staid, boring image, primarily because the earlier advertising agency which was in

charge of the account preferred to stick to routine, corporate ads.

One of the first Amul hoardings

In India, food was something one couldn't afford to fool around with. It had been taken too

seriously, for too long. Sylvester daCunha decided it was time for a change of image.

The year Sylvester daCunha took over the account, the country saw the birth of a campaign

whose charm has endured fickle public opinion, gimmickry and all else.

The Amul girl who lends herself so completely to Amul butter, created as a rival to the Polson

butter girl. This one was sexy, village belle, clothed in a tantalising choli all but covering her

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upper regions. "Eustace Fernandez (the art director) and I decided that we needed a girl who

would worm her way into a housewife's heart. And who better than a little girl?" says Sylvester

daCunha. And so it came about that the famous Amul Moppet was born.

That October, lamp kiosks and the bus sites of the city were splashed with the moppet on a

horse. The baseline simply said, Thoroughbread, Utterly Butterly Delicious Amul,. It was a

matter of just a few hours before the daCunha office was ringing with calls. Not just adults, even

children were calling up to say how much they had liked the ads. "The response was

phenomenal," recalls Sylvester daCunha. "We knew our campaign was going to be successful."

The Rebecca Mark favourite

For the first one year the ads made statements of some kind or the other but they had not yet

acquired the topical tone. In 1967, Sylvester decided that giving the ads a solid concept would

give them extra mileage, more dum, so to say. It was a decision that would stand the daCunhas

in good stead in the years to come.

In 1969, when the city first saw the beginning of the Hare Rama Hare Krishna movement,

Sylvester daCunha, Mohammad Khan and Usha Bandarkar, then the creative team working on

the Amul account came up with a clincher -- 'Hurry Amul, Hurry Hurry'. Bombay reacted to the

ad with a fervour that was almost as devout as the Iskon fever.

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That was the first of the many topical ads that were in the offing. From then on Amul began

playing the role of a social observer. Over the years the campaign acquired that all important

Amul touch.

India looked forward to Amul's evocative humour. If the Naxalite movement was the happening

thing in Calcutta, Amul would be up there on the hoardings saying, "Bread without Amul Butter,

cholbe na cholbe na (won't do, won't do). If there was an Indian Airlines strike Amul would be

there again saying, Indian Airlines Won't Fly Without Amul.

There are stories about the butter that people like to relate over cups of tea. "For over 10 years I

have been collecting Amul ads. I especially like the ads on the backs of the butter packets,

"says Mrs. Sumona Varma. What does she do with these ads? "I have made an album of them

to amuse my grandchildren," she laughs. "They are almost part of our culture, aren't they? My

grandchildren are already beginning to realise that these ads are not just a source of

amusement. They make them aware of what is happening around them."

Despite some of the negative reactions that the ads have got, DaCunhas have made it a policy

not to play it safe. There are numerous ads that are risque in tone.

"We had the option of being sweet and playing it safe, or making an impact. A fine balance had

to be struck. We have a campaign that is strong enough to make a statement. I didn't want the

hoardings to be pleasant or tame. They have to say something," says Rahul daCunha.

"We ran a couple of ads that created quite a furore," says Sylvester daCunha. "The Indian

Airlines one really angered the authorities. They said if they didn't take down the ads they would

stop supplying Amul butter on the plane. So ultimately we discontinued the ad," he says

laughing. Then there was the time when the Amul girl was shown wearing the Gandhi cap. The

high command came down heavy on that one. The Gandhi cap was a symbol of independence,

they couldn't have anyone not taking that seriously. So despite their reluctance the hoardings

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were wiped clean. "Then there was an ad during the Ganpati festival which said, Ganpati Bappa

More Ghya (Ganpati Bappa take more). The Shiv Sena people said that if we didn't do

something about removing the ad they would come and destroy our office. It is surprising how

vigilant the political forces are in this country. Even when the Enron ads (Enr On Or Off) were

running, Rebecca Mark wrote to us saying how much she liked them."

Amul's point of view on the MR coffee controversy

There were other instances too. Heroine Addiction, Amul's little joke on Hussain had the artist

ringing the daCunhas up to request them for a blow up of the ad. "He said that he had seen the

hoarding while passing through a small district in UP. He said he had asked his assistant to take

a photograph of himself with the ad because he had found it so funny," says Rahul daCunha in

amused tones. Indians do have a sense of humour, afterall.

From the Sixties to the Nineties, the Amul ads have come a long way. While most people agree

that the Amul ads were at their peak in the Eighties they still maintain that the Amul ads

continue to tease a laughter out of them.

Where does Amul's magic actually lie? Many believe that the charm lies in the catchy lines. That

we laugh because the humour is what anybody would enjoy. They don't pander to your

nationality or certain sentiments. It is pure and simple, everyday fun.

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AMUL’S JOURNEY TOWARDS EXCELLENCE

AMUL’s journey towards excellence is marked by some critical understanding of the business

environment in large emerging economies like India where markets have to be developed by

combining efficiency related initiatives with increasing the base of marginal suppliers and

consumers. The essence of AMUL’s efforts were as follows:

• It combined market and social development in an emerging economy. It recognized the inter-

linkages between various environments that governed the lives of marginal milk farmers

and the unmet needs of consumers. It also changed the supply chain paradigm in order to

reduce the cost to the consumer while increasing the return to the supplier.

• It realized that in order to achieve their objectives, it had to benefit a large number of people –

both suppliers and consumers. While large scale had the danger of failure due to poor

control and required more resources, it also had the advantage of creating a momentum

that would be necessary to bring more people into the fold and thereby help more suppliers

and consumers.

• It also realized that its goal could only be achieved in the long run and this required

developing values in people and processes that were robust, replicable and transparent.

• It also realized that the cooperative would not be independent and viable in the face of

competition if it were not financially sound. This implied that AMUL had to develop distinct

capabilities that would deliver competitive advantage to its operations. This would include

long term cost containment, world-class deployment of technological resources and R&D,

and better leveraging of scarce resources. In Table 1 we present some characteristics of

this unique movement and how AMUL went about building a culture of excellence. The

salient features of this approach (which has been termed as the “Anand Pattern”) are

discussed in subsequent paragraphs.

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TABLE 1: CHARACTERISTICS OF AMUL’S APPROACH TO EXCELLENCE

Managerial Dimensions

Elements Implementation Mechanisms

Leadership Charisma, long term vision, commitment, trustworthy, selfless gain, strong managerial style (bordering on stubbornness), technocrat, pan-Indian vision/nationalism, persuasion

Constantly raising the bar, promoting a can-do attitude, communication of the vision to farmers, consumers and the government

Strategy Farmer Orientation, technology, cost leadership, product variety in later years

R&D focus, efficient supply chain, simultaneous development of suppliers & markets, financing projects from internal accruals

Organization Network of cooperatives, National Dairy Development Board, nature of professional managers

Democratic governance of cooperatives, unique composition and role of board members of cooperatives, proactive role of the village societies division at AMUL

Marketing Gujarat Cooperative Milk Marketing Federation

Product mix, pricing, dealer network, managing supply and demand growth, advertisement

Operations & Supply Chain

Robust logistics, effective production, implementation of state-of-art technology

High utilization of plant capacity, technology & automation for enhancing quality, TQM, adoption of modern manufacturing practices, coordination between unions & marketing federation

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Leadership

While Kaira Union (or AMUL) had the support of national leaders who were at the forefront of

the Indian independence movement, its local leaders were trained in Gandhian simplicity and

had their feet rooted firmly amongst people whom they had mobilized – the poor farmers of

Anand. The foremost amongst them was Tribhuvandas Patel who had led the movement for the

formation of cooperatives of small and marginal farmers in order to compete against investor

owned enterprises on one hand, and keep bureaucracy away on the other hand. Tribhuvandas

was the first Chairman of the cooperative. His skills lay in organizing the village producers, in

making them believe in the power of cooperation and their rights towards improvement of

human condition. He is remembered as fair and honest person whose highest sense of

accountability to the members of the union laid the foundation of trust between network

members. Another important aspect of his remarkable management style was his gentleness

and ability to repose trust in people – he gave complete autonomy to managers of the union and

earned complete commitment from them. Verghese Kurien was one such manager who would,

first, shape the destiny of the Union and then the milk movement throughout the country.

Kurien emerged as the father of the dairy movement in India. He managed to keep the

government and bureaucrats away from the cooperative and gave shape to the modern

structure of the cooperative, worked tirelessly to establish the values of modern economics,

technology and concern for farmers within the cooperative. He interfaced with global financing

agencies to build new projects at AMUL. He worked with the Unions to bring the best of

technology to the plants. He worked with marginal village farmers to create systems that would

increase milk yields. He understood that without meeting the needs of customers he would not

be able to satisfy his obligations to the farmers. In short, Kurien shaped the destiny of the milk

movement in India through NDDB (as its Chairman) and particularly at GCMMF and

cooperatives in Gujarat. He helped build a modern organization with professional management

systems that would support the aspirations of farmers and customers. Several young people left

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better paying jobs to help create a dream of making India the milk capital of the world. Kurien

had learnt the persuasive charm of Tribhuvandas through plain speaking and had soon created

a cadre of highly capable managers to whom he had delegated both management as well as

commitment. These leaders were created at the village, district and state levels in different

organizations of the network.

Tribhuvandas knew that his fledgling cooperative needed a technocrat manager who shared his

concern for the farmers and also had the tenacity to organize marginal producers. Convincing

farmers to join the cooperative required commitment bordering on stubbornness, a can do

attitude and a desire to change lives of poor people. Verghese Kurien had those skills and had

linkages to the government. He was charismatic in his communication and committed in his

effort. Over a period of time, he developed a very close link with the poor farmers who, as he

always says, “were his employers” at the cooperative. He would travel through the villages

along with Tribhuvandas and work out the details of how the milk collection cooperative would

work, how trucks would pickup milk from village societies, how the cattle would have to be taken

care of and how all of this would help the poor milk farmer come out of poverty and the clutches

of the middleman. Operational details were meticulously planned and executed. And then, he

along with two of his close associates would work on the design of the dairy plant including

conducting experiments to create powder out of buffalo milk – a task that was ridiculed by all

who heard of it including the international aid agencies in the dairy industry. Tribhuvandas and

Kurien were able to convince the government also of the value of his efforts and secured

funding for several projects of the cooperative. He was slowly laying the foundation of a modern

dairy industry in India. Membership of the cooperative started to increase, professional

managers started to join AMUL and production capacity at AMUL started to expand (and this

expansion was done through innovative changes to processes at the plant and through

equipment designed and fabricated in-house). Kurien had transformed AMUL from a dream into

a major industrial entity – a network of plants, cooperative societies, research centers, an

institute for training future managers in rural management, secondary services like

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veterinary/artificial insemination expertise/feed factory etc. Kurien’s biggest strength lay in his

ability to convince people that the cause of rural farmers was important thus establishing an

important shared value. Subsequently, he could convince the government to replicate the AMUL

model in almost all states of the country.

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AMUL STRATEGY

AMUL’s business strategy is driven by its twin objectives of (i) long-term, sustainable growth to

its member farmers, and (ii) value proposition to a large customer base by providing milk and

other dairy products a low price. Its strategy, which evolved over time, comprises of elements

described below.

Simultaneous Development of Suppliers and Customers: From the very early stages of the

formation of AMUL, the cooperative realized that sustained growth for the long-term was

contingent on matching supply and demand. Further, given the primitive state of the market and

the suppliers of milk, their development in a synchronous manner was critical for the continued

growth of the industry. The organization also recognized that in view of the poor infrastructure in

India, such development could not be left to market forces and proactive interventions were

required. Accordingly, AMUL and GCMMF adopted a number of strategies to assure such

growth. For example, at the time AMUL was formed, the vast majority of consumers had limited

purchasing power and was value conscious with very low levels of consumption of milk and

other dairy products. Thus, AMUL adopted a low price strategy to make their products

affordable and guarantee value to the consumer. The success of this strategy is well recognized

and remains the main plank of AMUL's strategy even today. The choice of product mix and the

sequence in which AMUL introduced its products is consistent with this philosophy. Beginning

with liquid milk, the product mix was enhanced slowly by progressive addition of higher value

products while maintaining desired growth in existing products. Even today, while competing in

the market for high value dairy products, GCMMF ensures that adequate supplies of low value

products are maintained. On the supply side, as mentioned earlier, the member-suppliers were

typically small and marginal- farmers had severe liquidity problems, were illiterate and had no

prior training in dairy farming. AMUL and other cooperative Unions adopted a number of

strategies to develop the supply of milk and assure steady growth. First, for the short term, the

procurement prices were set so as to provide fair and reasonable return. Second, aware of the

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liquidity problems, cash payments for milk supply was made with minimum of delay. For the

long-term, the Unions followed a multi-pronged strategy of education and support. For example,

only part of the surplus generated by the Unions is paid to the members in the form of

dividends. A substantial part of this surplus is used for activities that promote growth of milk

supply and improve yields. These include provision of veterinary services, support for cold

storage facilities at the village societies etc. In parallel, the Unions have put in place a number of

initiatives to help educate the members.

To summarize, the dual strategy of simultaneous development of the market and member

farmers has resulted in parallel growth of demand and supply at a steady pace and in turn

assured the growth of the industry over an extended period of time.

Cost Leadership: AMUL’s objective of providing a value proposition to a large customer base

led naturally to a choice of cost leadership position. Given the low purchasing power of the

Indian consumer and the marginal discretionary spending power, the only viable option for

AMUL was to price its products as low as possible. This in turn led to a focus on costs and had

significant implications for managing its operations and supply chain practices (described later).

Focus on Core Activities: In view of its small beginnings and limited resources, it became

clear fairly early that AMUL would not be in a position to be an integrated player from milk

production to delivery to the consumer. Accordingly, it chose a strategy to focus on core dairy

activities and rely on third parties for other complementary needs. This philosophy is reflected in

almost all phases of AMUL network spanning R&D, production, collection, processing,

marketing, distribution, retailing etc. For example, AMUL focused on processing of liquid milk

and conversion to variety of dairy products and associated research and development. On the

other hand, logistics of milk collection and distribution of products to customers was managed

through third parties.

However, it played a proactive role in making support services available to its members

wherever it found that markets for such services were not developed. For example, in the initial

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stages, its small and marginal member farmers did not have access to finance, veterinary

service, knowledge of basic animal husbandry etc. Thus to assure continued growth in milk

production and supply, AMUL actively sought and worked with partners to provide these

required services. In cases where such partnerships could not be established, AMUL developed

the necessary capabilities and provided the services. These aspects are elaborated later in this

section.

Managing Third Party Service Providers: Well before the ideas of core competence and the

role of third parties in managing the supply chain were recognized and became fashionable,

these concepts were practiced by GCMMF and AMUL. From the beginning, it was recognized

that the core activity for the Unions lay in processing of milk and production of dairy products.

Accordingly, the Unions focused efforts on these activities and related technology development.

Marketing efforts (including brand development) were assumed by GCMMF. All other activities

were entrusted to third party service providers. These include logistics of milk collection,

distribution of dairy products, sale of products through dealers and retail stores, some veterinary

services etc. It is worth noting that a number of these third parties are not in the organized

sector, and many are not professionally managed. Hence, while third parties perform the

activities, the Unions and GCMMF have developed a number of mechanisms to retain control

and assure quality and timely deliveries (see the sub-section on Coordination for

Competitiveness later in the paper for more details). This is particularly critical for a perishable

product such as liquid milk.

Financial Strategy: AMUL’s finance strategy is driven primarily by its desire to be self-reliant

and thus depend on internally generated resources for funding its growth and development. This

choice was motivated by the relatively underdeveloped financial markets with limited access to

funds, and the reluctance to depend on Government support and thus be obliged to cede

control to bureaucracy. AMUL’s financial strategy may thus be characterized by two elements:

(a) retention of surplus to fund growth and development, and (b) limited/ no credit, i.e., all

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transactions are essentially cash only. For example, payment for milk procured by village

societies is in cash and within 12 hours of procurement (most, however, pay at the same time

as the receipt of milk). Similarly, no dispatches of finished products are made without advance

payment from distributors etc. This was particularly important, given the limited liquidity position

of farmer/suppliers and the absence of banking facilities in rural India. This strategy strongly

helped AMUL implement its own vision of growth and development. It is important to mention

that many of the above approaches were at variance with industry practices of both domestic

and MNC competitors of AMUL.

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AMUL MARKETING

GCMMF is the marketing arm of the network and manages the physical delivery and distribution

of milk and dairy products from all the Unions to customers. GCMMF is also responsible for all

decisions related to market development and customer management. These activities, which

range from long-term planning to medium-term and short-term operational decisions are

described below.

As mentioned earlier, introduction of new products and choice of product mix and markets

should be consistent with the growth strategy, and synchronous with growth in milk supply.

GCMMF’s demand growth strategy may be characterized by two key elements: (i) developing

markets for its high value products by graduating customer segments from low value products,

and (ii) maintaining a healthy level of customer base for its base products (low value segment).

This strategy often requires GCMMF to allocate sufficient quantity of milk supply to low value

products, thereby sacrificing additional profits that could be generated by converting the same to

high value products.

Interestingly, advertisement & promotion (a la FMCG) was not considered to be enough of value

addition and hence the budget was kept relatively small. Instead, GCMMF preferred a lower

price with emphasis on efficiency in advertising. In this context, GCMMF provides umbrella

branding to all the products of the network. For example, liquid milk as well as various milk

products produced by different Unions are sold under the same brand name of AMUL.

Interestingly, the advertising has centered on building a common identity (e.g., a happy &

healthy “cartoon” AMUL girl) and evoking national emotion (e.g., the key advertising slogan says

“AMUL - The Taste of India”).

GCMMF also plays a key role in working with the Unions to coordinate the supply of milk and

dairy products. In essence, it procures from multiple production plants (the thirteen Unions),

which in turn procure from the Village Societies registered with each Union. GCMMF distributes

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its products through third party distribution depots that are managed by distributors who are

exclusive to GCMMF. These distributors are also responsible for servicing retail outlets all over

the country. GCMMF sales staff manages this process. Retailing of GCMMF’s products takes

place through the FMCG retail network in India most of whom are small retailers. Liquid milk is

distributed by vendors who deliver milk at homes. Since 1999, GCMMF has started web based

ordering facilities for its customers. A well-defined supply chain has been developed to service

customers who order in this manner.

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OPERATIONS & SUPPLY CHAIN MANAGEMENT IN AMUL

As mentioned earlier, the strategy, design and practices in AMUL’s network are strongly driven

by the objective of establishing and operating an efficient supply chain from milk production and

procurement to product delivery to customers. Management of this network is built around two

key elements – (a) coordination of the diverse elements of the network and (b) use of

appropriate technology that includes product, process and information technology and

managerial practices and systems. In what follows, we describe various features of these

elements that have contributed to the evolution of an efficient supply chain.

Coordination for Competitiveness

Robust coordination is one of the key reasons for the success of operations involving such an

extensive network of producers and distributors at GCMMF. Some interesting mechanisms exist

for coordinating the supply chain at GCMMF. These range from ensuring fair share allocation of

benefits to various stakeholders in the chain to coordinated planning of production and

distribution. More importantly, the reason for setting up of this cooperative is not amiss to any

one in this large network organization. Employees, third part service providers, and distributors

are constantly reminded that they work for the farmers and the entire network strives to provide

the best returns to the farmers, the real owners of the cooperative. It may be remembered that

coordination mechanisms have to link the lives and activities of 2.12 million small suppliers and

0.5 million retailers!

There appear to be two critical mechanisms of coordination that ensure that decision making is

coherent and that the farmers gain the most from this effort. These mechanisms are:

• Inter-locking Control

• Coordination Agency: Unique Role of Federation

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Inter-locking Control

Each Village Society elects a chairperson and a secretary from amongst its member farmers of

good standing to manage the administration of the VS. Nine of these chairpersons (from

amongst those VS affiliated to a Union) are elected to form the Board of Directors of the Union.

The Chairperson of the Union Board is elected from amongst these members. The managing

director of the Union, who is a professional manager, reports to the chairperson and the board.

All chairpersons of all the Unions form the Board of Directors of GCMMF. The managing

director of GCMMF reports to its Board of Directors. Each individual organization, the Union or

GCMMF, is run by professional managers and highly trained staff. It must be pointed that all

members of all the boards in the chain are farmers who pour milk each day in their respective

Village Societies.

A key reason for developing such an inter-locking control mechanism is to ensure that the

interest of the farmer is always kept at the top of the agenda through its representatives who

constitute the Boards of different entities that comprise the supply chain. This form of direct

representation also ensures that professional managers and farmers work together as a team to

strengthen the cooperative. This helps in coordinating decisions across different entities as well

as speeding both the flow of information to the respective constituents and decisions.

Coordination Agency: Unique Role of the Federation

In addition to being the marketing and distribution arm of the Unions, GCMMF plays the role of a

coordinator to the entire network within the State – coordinating procurement requirements with

other Federations (in other states), determining the best production allocation for its product mix

from amongst its Unions, managing inter-dairy movements, etc. It works with two very clear

objectives: to ensure that all milk that the farmers produce gets sold in the market either as milk

or as value added products and to ensure that milk is made available to an increasingly large

sections of the society at affordable prices. In addition, it has to plan its production at different

Unions in such a way that market requirement matches with unique strengths of each Union and

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that each of them also gets a fair return on its capacity. In this regard, GCMMF follows an

interesting strategy. GCMMF, in consultation with all the Unions, decides on the product mix at

each Union location. Some considerations that govern this choice are the strengths of each

Union, the demand for various products in its region as well as the country, long term strategy of

each Union, procurement volumes at different Unions, distribution costs from various locations

etc. Demand for daily products and supply of milk vary with the season. Further, demand and

supply seasons run counter to each other making the planning problem more complex. In

making allocations to Unions, GCMMF is guided by two main objectives – (i) maximizing the

network surplus, and (ii) maintaining equity among unions for the surplus realized. In this

regard, very often GCMMF is willing to sacrifice realizable surplus and allocate products to “less

efficient” Unions in order to achieve better balance in surpluses accruing to the Unions.

Technology for Effectiveness

Service to customers required the following: better and newer “products”, “processes” that

would deliver the low cost advantage to the network and “practices” that would ensure high

productivity and delivery of the right product at the right time. Thus technology or knowledge

that was embodied in products, processes, and practices became an important factor in

delivering effectiveness to the network of cooperatives. One distinguishing feature of AMUL (in

comparison with other similar cooperatives globally) is the large variety in their product mix.

Producing them not only requires diverse skills but also knowledge of different types of

processes. AMUL dairy led the way in developing many of these products and establishing the

processes for other member Unions.

Equally impressive are the achievements on process technology. While several continuous

innovations to equipment and processes have been done at AMUL, the most significant one has

been the development of processes for using buffalo milk to produce a variety of end products.

Gujarat (and most of India) is a buffalo predominant area. As more farmers joined the

cooperatives, the need to develop a mechanism for storage of increasing quantities of milk

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became intense. Moreover, the cooperative was established on the promise that it would buy

any quantity of milk that a member farmer wanted to sell. The need to store milk in powder form

increases as excess milk quantities in winter seasons could then be used in lean summer

seasons. Moreover, demand for liquid milk was not growing along with growth in milk

production. No technology, however, existed worldwide to produce powder from buffalo milk.

Engineers at AMUL successfully developed a commercially viable process for the same – first

time in the history of global diary industry. Subsequently, it also developed a process for making

baby food out of this milk powder. It has also developed a unique process for making good

quality cheese out of buffalo milk thereby converting a perceived liability into a source of

comparative advantage – the task was done through process technology research. Most of its

plants are state of art and automated. Similar efforts in the area of “embryo transfer technology”

have helped create a high yield breed of cattle in the country. AMUL’s innovations in the areas

of energy conservation and recovery have also contributed to reduction in cost of its operations.

AMUL also indigenously developed a low cost process for providing long shelf life to many of its

perishable products. TQM at the grassroots has been a strong movement to develop

leadership, operational and strategic capabilities in the entire network – farmers, village

cooperatives, dairy plants, distributors and wholesalers and retailers. Key elements of this TQM

movement have been:

Friday Departmental Meetings: Each Friday, at a prescribed time, every one in the network

(from the farmers to the carry & forwarding agents) joins their respective departmental meeting

to discuss quality initiatives and share policy related information.

Training for Transformational Leadership so that individuals are able to control their

thoughts, feelings and behavior and take more responsibility in one’s life and

surrounding environment.

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Application of Hoshin Kanri principles to bring about a bottom-up setting of objectives –

aligning policies for effective management of Unions & village societies on hand with

those of channel member on the other hand. ISO/HACCP certification was obtained for

all the Unions and each village society is in the process of obtaining the same.

Training for farmers and their families emphasizing the need for good health care for not

only cattle during its pregnancy and feeding but also for expecting and feeding mothers

and the whole family. This effort has brought about a significant social change towards

such issues in villages that have cooperative milk societies.

Retail Census: GCMMF undertakes a census of all retail outlets (over 500,000) to

evaluate customer perceptions and distribution efficacy of their network. Interestingly,

this is being done by wholesalers in their respective territories at their own cost. This

information is used for policy deployment exercise. The extent of IT usage includes a

B2C ordering portal, an ERP based supply chain planning system for the flow of material

in the network, a net based dairy kiosk at some village societies (for dissemination of

dairy related information), automated milk collection stations at village societies and a

GIS based data network connecting villages societies to markets. Milk collection

information at more than 10,000 villages is available to all dairies (or Unions) to enable

them make faster decisions in terms of production & distribution planning, and disease

control in more than 6,700,000 animals. Similarly, this is linked with information at all 45

distribution offices and 3900 distributors. This network is being extended to cover all

related field offices in the network. The GCMMF cyber store delivers AMUL products at

the doorsteps of the consumers in 125 cities across the country.

What is remarkable about the above is implementation of very contemporary practices in rural

areas where both education and infrastructure are generally low. One of the key sources of

competitive advantage has been the ability of the cooperative to continuously implement good

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practices across all elements of the network – the federation, unions, village societies and the

distribution channel. Whether it is implementation of small group activities or quality circles at

the federation or SPC and TQM at the Unions or housekeeping and good accounting practices

at the village societies level, the network has developed very interesting ways of rolling out

improvement programmes across different entities. While these programs may not be very

unique, the scale is impressive. One of the key strengths of GCMMF & AMUL can surely be

characterized as development of processes that allow them to implement these practices across

a large number of members.

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GROWTH AND CHALLENGES OF AMUL

From its inception with the formation of its first milk cooperative, AMUL network has sustained

an impressive growth rate for more than 50 years culminating in the emergence of Indian dairy

industry as the world’s leading milk producer. However, it is unclear whether AMUL’s strategy

and practices that have worked well for long can maintain this growth trajectory in a changing

environment with globalization and increased competition. In this section we describe some of

AMUL’s initiatives and discuss briefly opportunities for growth and challenges that need to be

overcome.

AMUL’s growth during the past five decades has been fuelled primarily by growth in milk supply

with corresponding pricing strategy to generate demand. This growth has been sustained by a

two-pronged strategy – (a) growth in the number of member farmers by widening its coverage

with more village societies and increasing the membership in each society, and (b) growth in per

capita milk supply from its members. This growth is achieved by increasing milk yields and by

helping members raise their investments in cattle. It is worth noting that AMUL has funded these

support activities from its earnings (instead of repatriating them to the members either as

dividends or with a higher procurement price). It is expected that AMUL’s growth in the

immediate future will continue to rely on this strategy. However, in the new emerging

environment, several challenges have become apparent and AMUL network needs to evolve

proactive mechanisms to counter these threats. First, competitors are cutting into milk supply by

offering marginally higher procurement prices thereby challenging the practice of provision of

services for long-term growth in lieu of higher prices in the short-term. Second, for a section of

its membership, dairy activity is a stepping-stone for upward mobility in the society. Typically,

such members move on to other occupations after raising their economic position through milk

production. As a result, AMUL is unable to realize the full benefits of its long-term strategy, and

finds new members (mostly marginal farmers) to replace those who have higher potential and

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capacity. While this is a welcome development for the society as a whole, it is unclear whether

AMUL would be able to sustain it in the light of increased competition.

By progressively increasing the share of higher value products AMUL has been able to grow at

a faster rate than the growth in milk supply. AMUL has been rather cautious in implementing this

strategy and has always ensured retention of its customer base for liquid milk and low value

products. With slowdown in the growth of milk supply this strategy is likely to come under

pressure and AMUL will be forced to make some hard choices. More important, it is fairly clear

that its low price, cost efficient strategy may not be appropriate for the high value segment.

Thus, AMUL may have to adopt a dual strategy specific to its target markets, which in turn may

lead to dilution in focus.

A part of AMUL’s growth has come from diversification into other agri-products such as

vegetable oils, instant foods etc. In some of these initiatives AMUL adapted its successful

cooperative organization structure, but the experience to date has been somewhat mixed. More

recently, the network is exploring conventional joint venture arrangements with suitable partners

for diversification into areas such as fast food and speciality chocolates. While it is too early to

assess the success of these ventures, challenges involved are becoming quite visible. For

example, diversification has resulted in expansion of the network with disparate elements, each

motivated by their own objectives. This in turn has led to a lack of focus within the network and

dilution in the commonality of purpose. These developments are likely to have serious

implications for coordination and control in the network. More important, shared vision and

common goal was one of the main planks of AMUL’s growth during the past 50 years, and its

dilution is likely to adversely impact the network performance.

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AMUL ORGANIZATION

Gujarat Cooperative Milk Marketing Federation

GCMMF: An Overview

Gujarat Cooperative Milk Marketing Federation (GCMMF) is India's largest food products

marketing organisation. It is a state level apex body of milk cooperatives in Gujarat which aims

to provide remunerative returns to the farmers and also serve the interest of consumers by

providing quality products which are good value for money.

Organisation structure

It all started in December 1946 with a group of farmers keen to free themselves from

intermediaries, gain access to markets and thereby ensure maximum returns for their efforts.

Based in the village of Anand, the Kaira District Milk Cooperative Union (better known as Amul)

expanded exponentially. It joined hands with other milk cooperatives, and the Gujarat network

now covers 2.12 million farmers, 10,411 village level milk collection centers and fourteen district

level plants (unions) under the overall supervision of GCMMF.

There are similar federations in other states. Right from the beginning, there was recognition

that this initiative would directly benefit and transform small farmers and contribute to the

development of society.

Markets, then and even today, are primitive and poor in infrastructure. Amul and GCMMF

acknowledged that development and growth could not be left to market forces and that

proactive intervention was required. Two key requirements were identified. The first, that

sustained growth for the long term would depend on matching supply and demand. It would

need heavy investment in the simultaneous development of suppliers and consumers.

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Second, that effective management of the network and commercial viability would require

professional managers and technocrats.

To implement their vision while retaining their focus on farmers, a hierarchical network of

cooperatives was developed, which today forms the robust supply chain behind GCMMF's

endeavors. The vast and complex supply chain stretches from small suppliers to large

fragmented markets.

Management of this network is made more complex by the fact that GCMMF is directly

responsible only for a small part of the chain, with a number of third party players (distributors,

retailers and logistics support providers) playing large roles.

Managing this supply chain efficiently is critical as GCMMF's competitive position is driven by

low consumer prices supported by a low cost system.

Members: 13 district cooperative milk producers' Union

No. of Producer Members: 2.6 million

No. of Village Societies: 12,792

Total Milk handling capacity: 10.16 million litres per day

Milk collection (Total - 2006-07): 2.38 billion litres

Milk collection (Daily Average 2006-07):

6.5 million litres

Milk Drying Capacity: 594 Mts. per day

Cattlefeed manufacturing Capacity: 2640 Mts per day

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Sales Turnover Rs (million) US $ (in million)

1994-95 11140 355

1995-96 13790 400

1996-97 15540 450

1997-98 18840 455

1998-99 22192 493

1999-00 22185 493

2000-01 22588 500

2001-02 23365 500

2002-03 27457 575

2003-04 28941 616

2004-05 29225 672

2005-06 37736 850

2006-07 42778 1050

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LIST OF PRODUCTS MARKETED

Breadspreads:

Amul Butter

Amul Lite Low Fat Breadspread

Amul Cooking Butter

Cheese Range:

Amul Pasteurized Processed Cheddar Cheese

Amul Processed Cheese Spread

Amul Pizza (Mozarella) Cheese

Amul Shredded Pizza Cheese

Amul Emmental Cheese

Amul Gouda Cheese

Amul Malai Paneer (cottage cheese)

Utterly Delicious Pizza

Mithaee Range (Ethnic sweets):

Amul Shrikhand (Mango, Saffron, Almond Pistachio, Cardamom)

Amul Amrakhand

Amul Mithaee Gulabjamuns

Amul Mithaee Gulabjamun Mix

Amul Mithaee Kulfi Mix

Avsar Ladoos

UHT Milk Range:

Amul Shakti 3% fat Milk

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Amul Taaza 1.5% fat Milk

Amul Gold 4.5% fat Milk

Amul Lite Slim-n-Trim Milk 0% fat milk

Amul Shakti Toned Milk

Amul Fresh Cream

Amul Snowcap Softy Mix

Pure Ghee:

Amul Pure Ghee

Sagar Pure Ghee

Amul Cow Ghee

Infant Milk Range:

Amul Infant Milk Formula 1 (0-6 months)

Amul Infant Milk Formula 2 ( 6 months above)

Amulspray Infant Milk Food

Milk Powders:

Amul Full Cream Milk Powder

Amulya Dairy Whitener

Sagar Skimmed Milk Powder

Sagar Tea and Coffee Whitener

Sweetened Condensed Milk:

Amul Mithaimate Sweetened Condensed Milk

Fresh Milk:

Amul Taaza Toned Milk 3% fat

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Amul Gold Full Cream Milk 6% fat

Amul Shakti Standardised Milk 4.5% fat

Amul Slim & Trim Double Toned Milk 1.5% fat

Amul Saathi Skimmed Milk 0% fat

Amul Cow Milk

Curd Products:

Yogi Sweetened Flavoured Dahi (Dessert)

Amul Masti Dahi (fresh curd)

Amul Masti Spiced Butter Milk

Amul Lassee

Amul Icecreams:

Royal Treat Range (Butterscotch, Rajbhog, Malai Kulfi)

Nut-o-Mania Range (Kaju Draksh, Kesar Pista Royale, Fruit Bonanza, Roasted

Almond)

Nature's Treat (Alphanso Mango, Fresh Litchi, Shahi Anjir, Fresh Strawberry, Black

Currant, Santra Mantra, Fresh Pineapple)

Sundae Range (Mango, Black Currant, Sundae Magic, Double Sundae)

Assorted Treat (Chocobar, Dollies, Frostik, Ice Candies, Tricone, Chococrunch,

Megabite, Cassatta)

Utterly Delicious (Vanila, Strawberry, Chocolate, Chocochips, Cake Magic)

Chocolate & Confectionery:

Amul Milk Chocolate

Amul Fruit & Nut Chocolate

Brown Beverage:

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Nutramul Malted Milk Food

Milk Drink:

Amul Kool Flavoured Milk (Mango, Strawberry, Saffron, Cardamom, Rose, Chocolate)

Amul Kool Cafe

Health Beverage:

Amul Shakti White Milk Food

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WHY AMUL IS STILL THE TASTE OF INDIA

After the success of Masti Chaas, Amul's renewing its focus on milk-based beverages. It has

just launched cold coffee. More brands for the health conscious in this category and more action

in the chocolate segment is on the cards next. So, how the brand has has withstood recent

changes to remain the taste of india.

For some, it throws up money for a livelihood, for others it's a tasty thirst quencher. Linking

these very different kinds of people is the milk that the Rs 3,800 crore (Rs 38 billion) Gujarat Co-

operative Milk Marketing Federation or GCMMF markets. Together, the districts that contribute

to Amul, collect 6.8 million litres everyday.

Flush with supply, two years ago Amul moved up the value chain by launching flavoured milk

under the Kool brand. Since then, the brand has has grown by 50%. Following Stamina, an

energy drink that was launched in the summer, Amul's pouring more into its beverage portfolio.

Canned cold coffee, called Kool Cafe has just been rolled out nationally.

BM Vyas, chairman, GCMMF, told CNBC-TV18, "Our turnover of this beverage segment is

about Rs 100 crore. In that respect, it may not be big but clearly the consumer of India is

changing and his needs are changing.and as far as milk beverages are concerned, we are well

equipped and we want to be there well before the consumer demands it."

The market for milk beverages is just 2% of the Rs 7,500 crore beverage market, but Amul is

confident it will grow. It plans to launch 6 to 7 more beverage variants especially for the health-

conscious in the next couple of years. The fact that others like Britannia and Coca Cola have

tried and failed or are still planning to, doesn't deter Amul. Here its 29 lakh strong farmer

supplier network will be its trump card..

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Also Amul's Rs 50 crore (Rs 500 million) chocolate business, that has a been lying low since the

mid 90s but is available in a few Western and Southen states will see renewed interest. Amul

will expand the Choco zoo, launched last year, and will ramp up distribution to 6.5 lakh retail

outlets nationwide. But brand experts believe that this may be half-hearted. Amul hasn't so far

done enough to support its non-milk brands, including butter and cheese.

Dircetor, MarketGate, Sharda Agarwal says, "It enters several categories but doesn't sustain

investment in these categories, therefore, it is not able to fully realise the potential of the product

it launches, which is why it can never really realise category potenial in this country."

While Amul continues to do well in and bet big on its milk brands, its been a summer of

discontent. After founder, Verghese Kurien's unceremonious exit in March, a power struggle

between the 12 milk co-operative unions began. Threats of walking out and marketing brands

outside Amul were made. Peace was made by agreeing to shelve local brands to sell under

Amul. But sources say that other cooperatives - Surat and Rajkot - may be the next trouble-

makers. But GCMMF assures otherwise.

Vyas says, "Out of 12 dairies which are picking and markting milk in local areas, 10 have

already decided to change over - 8 have changed, 2 are in the process of changing over - but

in-priniciple they have passed the resolution of the board, and will implement it in next 1 month.

The remaining two will also mostly discuss at the next board meeting and start selling milk

under the Amul brand name."

But even if a split happens, brand Amul doesn't expect a dip in customer loyalty. Executive

Director, FCB Ulka, Shashi Sinha explains, "The learning curve they've had, the wherewithal,

the distribution infrastructure they set up, the procurement infrastructure they set up, they built

up a consumer franchise, which you can't take away from them. It's difficult for anyone, whether

someone from inside or a new company coming along - Indian or global - it just so happened

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that an internal player was talking of launching a brand, it could be anyone launching a brand in

this space, it's difficult to dislodge Amul."

True, but the threat could be external than internal, as the country's biggest co-operative will

face competition from the biggest corporate, Reliance Industries. Sources say Reliance plans to

source 1 crore litres of milk daily for its dairy business. Soon, its Fresh stores will be stocking in-

house dairy products. However, Amul insists that being a co-operative, it's tough to match its

pricing and the Taste of India!

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MARKETING CHANNEL

The system in the Amul milk succeeded mainly because it provides an assured market at

remunerative prices for producers' milk besides acting as a channel to market the production

enhancement package. What's more, it does not disturb the agro-system of the farmers. It also

enables the consumer an access to high quality milk and milk products.

Contrary to the traditional system, when the middlemen cornered the profit of the business, the

system ensured that the profit goes to the participants for their socioeconomic upliftment and

common good.

Pursuing an ambitious target to market Amul milk in 50 cities across the country, the Gujarat

Cooperative Milk Marketing Federation (GCMMF) is also striving to enhance its presence in the

overseas milk market. From Rs. 50 crore last years, GCMMF is all set to export milk worth close

to Rs. 150 crore this year. All the exports are being made under the Amul brand. This case

study deals with a comprehensive audit of the distribution channel of Amul milk in Delhi to find

out as to what were the problems in the channel due to which the product was suffering a loss in

the market. Also, along with this consumer awareness of the Amul milk in Delhi has also been

tested via surveying and the results have been interpreted.

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THE TASTE OF COMPETITION- AMUL

It is the defining moment in the meeting with Bharat Mahenderbhai Vyas, the 51-year-old

managing director of the Gujarat Co-operative Milk Marketing Federation (GCMMF), popularly

known as Amul, after its larger than life brand. One of his colleagues, Sanjay Panigrahi, the

general manager in-charge of the confectionery business explains how Amul proposes to

enhance its portfolio with the launch of éclairs branded Chocolair and Milklair. ''Get your focus

right,'' snaps Vyas. ''We are into Re 1 confectionery; product-led segmentation will not work in

this price sensitive category.'' That's Vyas: self-confessed gourmand, GCMMF-lifer, and keeper

of the faith. Faith, in the case of the Rs 2,258 crore co-operative he heads, is price-leadership.

For, this is the basis of his strategy to make Amul India's best-known food brand, not just its

most popular milk, butter, and cheese one. The numerical target? A turnover in excess of Rs

10,000 crore by 2006-7.

There's a minor issue of competition. Amul's ambitions have put it squarely in the radar of

transnational marketing giants. Pizza Hut, Domino's, Cadbury, Nestlé, Britannia, Hindustan

Lever Limited-pick a marketing major and chances are, Amul will be competing with it in one

product category or another.

Does this intimidate Vyas? Not quite. ''We know the modus operandi of the MNCs,'' he

brags. ''We'll embarrass them everywhere.'' Those words are typical of Vyas. Both he and the

man who created Amul, its chairman, Dr. Verghese Kurien are critical of the way MNCs have

gone about their business in India.

A Patchy Record

In the context of Amul's past performance Vyas' words reek of bravado, nothing else. The co-

operative's fight with HLL in ice cream, starting with its entry into the market five years ago, is

well documented. The winner? HLL with a 40 per cent share of the 60 million litres a year

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(organised) market, although Amul is second with 27 per cent. Then, there is its performance in

chocolates, a category it entered 27 years ago. Market leader Cadbury boasts a share of 70 per

cent; Amul is a very distant third with 2 per cent.

Amul's obsession with price is only to be expected. It sources milk from over two million dairy

farmers in Gujarat and is highly cost competitive. But the obsession cuts both ways. It has often

blinded the co-operative to opportunities. Between 1983, when it launched a cheese spread and

a dairy whitener and 1996, when it did ice cream and condensed milk, Amul was content to

remain in launch-limbo. Since then, of course, things have changed. Today, Amul is

''everywhere'' as Vyas claims it to be: from cottage cheese (paneer) to gulab jamun, packaged

long-life milk to curd, cheese to pizzas, confectionery to ice cream mixes, and baby foods to ice

creams.

''Amul is a brand worthy of the trust of 1,000 million Indians,'' says Verghese Kurien, the

octogenarian who is the chairman of GCMMF and the icon of the co-operative movement in

India. ''Why should it just be a label for butter?''

That argument has been translated into a numerical goal for Amul: today, just about 15 per cent

of GCMMF's revenues come from value-added offerings like long life milk, ice cream, curd, and

gulab jamuns; in the next five years, the co-op wants to see this increase to 35 per cent. ''To do

this, the number of consumers interacting with Amul has to grow at a faster rate than that of

those interacting with any of my competitors,'' says Vyas.

Marketing Overdrive

To do this, Amul has moved its marketing efforts up a gear. In the pizza market, for instance, it

first tested the waters with an unbranded mozzarella cheese pizza. Satisfied that there is a

market for frozen pizzas, it has now soft-launched the Utterly Delicious brand. Over the next two

to three months, it will work out issues related to packaging and distribution before bestowing

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the Amul brand name on the product. Similarly, Snowcap is GCMMF's test-brand in the ice

cream mixes category.

Amul hopes to have sold 100,000 pizzas per day by end of day, March 31, 2002. With 3,000

outlets doing the selling, and a price-tag of Rs 25 for an mid-sized pizza (8 inches in diameter if

you are one of those people for whom size matters) that target is well within the realm of the

possible, but the competition is having none of it. ''We will not allow anyone to walk away with

our customers in the northern market,'' says Gurreet Singh, General Manager (Operations),

Nirula's, a New-Delhi based fast food chain that sells 5,000 pizzas a day. Now, taking a leaf

from GCMMF's book, Nirula's is set to launch frozen pizzas in six flavours in the Delhi market.

Other competitors are, literally, blasé. ''We have no plans to lower prizes (to combat Amul),''

says Pankaj Batra, Marketing Director (Subcontinent), Tricon Restaurants, the company that

runs 21 Pizza Hut outlets across 10 Indian cities.

Competitors in other categories are downright derisive of Amul's efforts. ''Amul has been

growing its market share; (but it has made) no efforts to grow the ice cream category,'' says J.H.

Mehta, Executive Director, Ice Cream, HLL. GCMMF's General Manager in-charge of marketing

R.S. Sodhi counters that the company's immediate objective with Snowcap (the ice cream mix)

is to ''create a market for ice cream mixes, not necessarily for Amul ice cream itself.''But with

both competitors eyeing the lucrative 75-100 crore units a year ice-cream-in-a-cone market, a

clash is imminent. Over the next three years, HLL plans to sell its offering in this category,

Kwality Walls Softy & Creamy, from over 1,000 machines. Vyas' response is a quiet, ''we know

just how to tackle the competition.''

No surprises for getting that one right-price it is. Thus, GCMMF's milk-based confectionery will

take on HLL's sugar confectionery brand Max in the sub-Re 1 segment. Even in a category like

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long-life milk targeting high-end consumers, Amul competes with Nestlé primarily on the plank

of price-competitiveness.

Life beyond price

Price is without doubt the source of Amul's edge over the competition, but that doesn't mean the

co-operative isn't familiar with other marketing weapons. In August, Nestlé discovered that to its

disadvantage, when it launched its eponymous brand of butter in the Delhi and Mumbai

markets. The refrigerators of the key retailers it had identified for the launch, were overflowing

with Amul butter, which normally sells so much that retailers don't have much of it in storage.

''We knew where they would go and flooded the market with Amul butter,'' grins Sodhi. And,

given GCMMF's wide range of products no retailer could say no.

The co-operative will have to fight and win more such battles before it can realise its ambitions

of being a food major. But distribution surely won't be its Achilles' heel. With 40 product

categories, 300 stock keeping units, 100,000 retailers with refrigerators, a 18,000-strong cold

chain, and 500,000 non-refrigerated retail outlets, GCMMF is no marketing minnow and it is now

learning to flex its distribution muscle either to make life tough for new entrants, or to push its

new offerings.

Cold chains, believe analysts like Motilal Oswal Securities' Shalini Gupta, are a tremendous

source of competitive advantage in this business. ''Amul was scoring over HLL in ice creams

simply because it controlled the milk and butter outlets that also stock ice creams.'' Now, HLL is

trying to put one over Amul by building a network of franchised ice cream parlours and kiosks.

It is, however, in the launch of its new products that GCMMF will find the cold chain most useful.

If Amul has set out to enter the frozen pizza business overnight without worrying about logistics,

it is on the strength of this existing 18,000-strong chain. Vyas is also not averse to taking the

fight to the competition.

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Thus Nestlé, which is gnawing away at GCMMF's dairy products range finds itself facing

competition in its staple baby foods market from the co-op. ''We'll hit the enemy where it hurts

most,'' gloats Vyas. Predictably, Amul Infant Milk Substitute will be priced lower than Nestum

and Cerelac, and given GCMMF's distribution muscle Nestlé has reason to be worried (the

company refused to speak to BT for this article). Amul's condensed milk brand Mithai Mate has

eroded market leader Milkmaid's dominance. Today, Mithai Mate has a 30 per cent share of the

market.

Vyas is also betting on Amul's ability to get more bang out of its advertising buck. Thanks to its

brand mascot, the Amul girl, the co-op has been able to get away with spending just one per

cent of its revenues on advertising. In contrast, the competition spends anywhere between 7

and 10 per cent on advertising.

And unlike the competition, that burns money on product-advertising, Amul spends close to 40

per cent of its annual advertising budget on the umbrella brand through its best-selling Taste of

India campaign. This, explains Shashi Sinha, Executive Director, FCB Ulka, and Amul's main

advertising agency, bestows the brand with a benefit that stays relevant across categories.

''Amul is all about taste, in the context of needs, and emotions.''

Co-opting partners

Price may be Amul's most important differentiator, but it is just the front-end of a strategy that

involves roping in other co-operatives across the country-Delhi and Bangalore-based Mother

Dairy or Akluj Dairy in Maharashtra-to help GCMMF in the critical functions of procurement and

manufacturing. "We have realised that if we are to succeed as a food company, we can do so

only by procuring and manufacturing through other co-operative federations, ''says Vyas. That

shouldn't be too difficult. Thus, its gameplan for the confectionery business is built around an

alliance with CAMPCO, the Karnataka-based cocoa farmer's co-operative which produces 5,000

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tonnes of cocoa products every year. Amul ice cream is manufactured in three GCMMF facilities

in Gujarat, and four non-GCMMF co-op facilities outside the state. Today, GCMMF has nine

such alliances with other co-operatives, and Vyas is in the process of scripting 10 more. It is on

the strength of just such an arrangement with Maharashtra Dairy and Pune Milk Co-operative in

Maharashtra that Amul is re-launching its brand in the 35 lakh litre a day liquid milk market in

Mumbai. And once the frozen pizza business takes off, GCMMF can probably tap Mother

Dairy's Safal as a source of frozen vegetables.

Apart from helping Amul keep capital costs low, these alliances will prove critical in the

case of low-shelf life products like milk and curd. And the ability to outsource products from

other co-operatives will help GCMMF keep its wage cost low. Its wage costs in 2000-01 were

0.8 per cent of sales; HLL's, although the MNC's revenues were nearly five times GCMMF's,

were 5 per cent of sales.

''Today, my strength lies in (the ability to tap into) farmer co-operatives,''

says Vyas. ''If I want to enter sugar-boiled confectionery, all I have to do is tie up with a sugar

co-operative.'' That should certainly help, but is there a downside to being a co-operative?

Raising money seems to be the least of GCMMF's concerns. ''I have a father-in-law in NDDB,

for money as and when I need. Why should I then tap the market,'' says Dr. Kurien, referring to

GCMMF's relationship with the apex dairy co-operative federation in the country. Over the next

four years, GCMMF will invest Rs 400 crore in its foods offensive; apart from NDDB, other

sources of these funds will be loans from banks and debentures issued to the members of the

co-operative. The Government's decision allowing multi-state co-operatives,

like GCMMF, to become producer companies will help reduce state governmental control and

interference, and enhance its autonomy of functioning.

Does Amul have the marketing wherewithal to compete

with the men? It does have a close relationship with the Institute of Rural Management, Anand,

from where it recruits 10 young managers every year. But middle- and senior-management

salaries in the co-operative are not really comparable to those in companies like HLL and

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Nestlé. ''GCMMF typically pays a middle or senior level executive 40 to 50 per cent of what he

will get in HLL,'' says Ronesh Puri, Managing Director, Executive Access, a head-hunting firm.

Kurien's response to this is typically Kurien. ''How much should a farmer pay his employee? 50

times his own earnings?'' Well, he at least needs to pay him enough to ensure he's not tempted

by the (taste of) competition.

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"AMUL ARE PLAYING THE ROLE OF A MARKET LEADER"

Vision for brand Amul

Amul value chain, for the consumer, was stopping at the stove. Customer can't eat my butter,

ghee or even cheese straight away. Amul will now get into products that go straight into the

consumer's mouth. Amul will be a food brand, for pizzas, traditional Indian sweets,

confectionery, baby foods, long life milk, curd. Amul are building the products for the future.

Amul strategy in the pizza market

Amul already sell 19,000 pizzas per day, more then both Domino's and Pizza Hut, individually.

Show me a multinational that has been able to do this in just 15 days! Amul Utterly Delicious

factory-frozen pizza, will come in two-variants, a smaller 6-inch for the retailer and a bigger 8-

inch for the take-home consumer market. The consumer pack is to beat the multi-national

competition. However, what is going to give me volumes is the bulk trade pack.

Amul plan to grow your base in the ice cream market

Amul playing the market leader's role of growing the category, through Snowcap. Snowcap, in

one litre, aseptically packaged tetrapack with six months shelf life at room temperature, will

grow the market, the in-home consumption of milkshakes, kulfis, fruit salads, even traditional

sweets like baasundi. Snowcap is the product of the future. HLL is not marketing ice cream

mixes, we are. This year, we'll beat HLL in ice cream sales.

How do Amul take increasing competition in your traditional dairy line business

What competition? There is no competition in butter! Britannia is forever on a promotional

crutch, because the throughput of its brand, at the retailer, is very low. Yes, Nestle is trying very

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hard to market its brand of long life milk (Nestle Doodh), but we beat them on sheer price and

geographically-spread manufacturing capacities.

Amul have been lying low on categories such as chocolates and milk additives

Now that the CAMPCO manufacturing facility is with us, Amul re-launch our chocolate range. To

start with we have entered the Re 1 price-point confectionery market with Chocolairs and

Milklairs. Amul will shortly be launching a count-line product (a la Cadbury's Gems) and a

puffed-rice centre chocolate product. In milk additives (Nutramul), Amul just like to sustain

whatever capacities we have, because Amul don't have core competencies here.

What's is Amul biggest competitive strength

In Amul endeavour to become a food brand, the relationship that Amul enjoy with other farmer-

based co-operatives all over the country is their biggest strength. Amul can get into any new

food category, without much time or investment.

Isn't GCMMF too price obsessive

Yes, but that's the faith. Amul co-operative, with a vision to give the farmer the best price for his

milk and the consumer the lowest price for the products he buys.

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AMUL POLICIES & DISTRIBUTION CHANNEL

Our nation has always been a manifestation of diversity and a balance of seemingly

irreconcilable contradictions. With our GDP surpassing one trillion dollar, India has emerged as

the eleventh largest economy in the world. India are poised to take our rightful position as one of

the world’s largest economy within the next few years. In sheer contrast, we continue to

languish at the 126th rank, among 177 countries on the Human Development Index, even

behind Sri Lanka and the Maldives. While our economy might be growing at more than 8% per

annum, our performance on poverty alleviation, life expectancy and educational attainment

needs considerable improvement.

This situation can be rectified only when our policy makers realise that rural development is a

sine qua non of overall development in India. With more than 70% of India population residing in

rural areas, no strategy of socio-economic development of India can be successful if it does not

place adequate emphasis on rural India. Only when our villages witness favourable impact on

their real per capita income, political & economic freedom, education, healthcare and

employment opportunities, shall we achieve our cherished goals of national development.

Therefore, the ultimate index of India’s progress is improvement in ‘quality of life’ of our rural

population.

The founding fathers of our nation were well aware of this reality. Mahatma Gandhi had

repeatedly asserted that the ‘real India’ lives in its villages. He stressed emphatically on

leveraging the ‘cooperative form of organisation’ as an effective instrument of rural

development. Sardar Vallabhbhai Patel had great faith in co-operation as a means of promoting

farmer’s well-being. He was the prime source of inspiration behind our ‘Amul’ model of dairy

cooperatives, which had a revolutionary impact on the socio-economic condition of rural India.

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Cooperatives have historically played a significant role in promoting agricultural and rural

development. Cooperatives enable farmers to retain control on the value chain for their own

agricultural produce. A cooperative form of organisation, not only helps in reducing transaction

cost, it also enhances the bargaining power of producers’ vis-à-vis their customers as well as

input-service providers. Cooperatives have several inherent advantages over other forms of

organisations in terms of ensuring members’ participation, mobilizing people’s resources and in

securing integration of various functions. They also effectively ensure equitable distribution of

benefits of development. Dairy cooperatives across India and Sugar cooperatives of

Maharashtra are prime examples of organisations, which have promoted and sustained rural

development.

Amul Pattern of dairy cooperatives have contributed immensely to the fact that India has

progressed from a milk-deficit country to emerge as the largest milk-producing nation in the

world. In the process, they have generated millions of days of employment for the rural poor and

improved their socio-economic condition. It has been observed that dairy cooperative movement

has resulted in significant improvement in ‘quality of life’ parameters, which form a part of

UNDP’s ‘Human Development Index’.

Any visitor to rural India can perhaps observe that on parameters such as ‘literacy levels, ‘life

expectancy at birth’ and ‘per capita income, those rural areas which have dairy cooperatives,

seem to have done much better, as compared to other rural regions. The vulnerable section of

rural populace, including children, expectant and nursing mothers in villages having dairy co-

ops, have much better nutritional status than their counterparts in other villages (Singh & Das,

1984). Even the landless households in cooperative villages have significantly better ‘quality of

life’ than their counterparts in other villages. Farmer-suicides are unheard of, in districts where

dairy cooperatives flourish. The World Bank in its evaluation of our Amul model has rightly

concluded that dairy cooperatives have shifted dairying from a sideline activity to a serious

economic enterprise, making it the major source of farm income (Candler & Kumar, 1998). This

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report also emphasised that dairying has given women, some measure of economic

independence, thereby empowering them to participate more actively in household decision-

making. Cooperatives have indeed done more for the emancipation of Indian women than

centuries of social reforms. While ensuring that women are able to work from home, the

withdrawal of females from farm labour also created ample employment opportunities for

landless labourers. Today, in the era of globalisation, privatisation and liberalisation,

cooperatives are facing a new set of challenges. It is true that cooperatives need a supportive

environment, in order to flourish. At the same time, cooperatives should also address their own

unique set of issues and prove to the world that they are worthy of support. The quality of

leadership in cooperatives has to be dedicated, mature, committed and loyal to the cause of

farmers. While the central and state government have done their best to help the cooperative

sector, their continuous support is essential for cooperatives to continue their lead role in rural

development. The various state governments should ensure that they provide complete

autonomy to cooperative organisations and avoid intervening directly in their affairs through

deputations. With one-third of our rural population, living below the poverty line and with most of

the rural producers surviving at the mercy of market intermediaries, it is unlikely that any free

market model of development will help them. Under the new world trade regime, ushered in by

WTO, only cooperatives can protect the poor farmer and the consumer, from the adverse

effects of free world trade. In the absence of a strong cooperative sector, both the producers

and the consumers would be subjected to exploitation by the private sector, as used to happen

in the pre-cooperative days. Unbridled privatisation is likely to have an adverse effect on the

weaker sections of milk producing population in terms of reduced employment opportunities and

higher cost of inputs. The weaker sections among consumers may also be placed at a

disadvantage, as a consequence of uncontrolled privatisation, as they may find dairy products

being priced out of their affordability limits. It is quite apparent that only producers’ cooperatives,

which have the benefit of enlightened leadership and professional management, are capable of

promoting socio-economic development in the country.

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The cooperative sector has a bright future in India, if they retain their core identity as member-

owned autonomous organisations governed by truly elected representatives, managed

professionally and led by visionary leaders. Today, cooperatives have to strengthen and

intensify their competitive advantages to retain their foothold in the fiercely competitive world

economy. An enabling legal framework would go a long way towards facilitating cooperatives in

enhancing their contribution towards national development.

Amul understand the government’s priority to keep inflation in check, keeping in mind

the interests of their consumers. Amul would, however, submit for the government’s kind

consideration, the fact that the recent ban on export of milk powders, has resulted in opportunity

loss for our poor farmers. While inflation will definitely affect our urban consumers, however, the

impact of the ban on our farmers is much more severe. The purchasing power of an urban

consumer is definitely much more than that of purchasing power of our poor farmers.

The Amul model came into existence, to protect the farmers from economic exploitation

by our middle-men. The dairy farmers in Europe, who went on strike, because they were not

getting sufficient price for their milk from large retail chains. After the strike, the same

supermarket chain was forced to increase the price to farmers, without increasing the price to

consumers. Similar cases have been reported from UK and other developed countries. The

experience from western world clearly demonstrates that large retail chains may not serve the

interests of the farmers. If due care is not taken, even the Modern Format Stores will end up

exploiting the rural producers, as middle-men had done in the past. Objective examination of

data available across the world will reveal that organised retailing has only served to reduce

farmer’s share of consumer’s dollar. In US alone, the share of farmer’s in the consumer price for

dairy products has reduced from 47% in 1971, to only 34% in 2001. In other agri-business

sectors, such as fruits & vegetables, meat products and cereals, the situation is even worse.

Traditional retailing has always been one of the few available sources of employment for our

economically disadvantaged masses. Growth of organised retailing may well result in massive

unemployment across the country, with severe economic and political consequences.

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Amul understand that even traditional retail sector needs to reform itself. In order to compete

effectively, small retailers have to become more organised, efficient and professional. Store

layouts, ambience, hygiene, housekeeping and customer-services will have to be modified. We

have already made a start in this direction by creating our own retail stores in the form of Amul

parlours, which will enable us to interface directly with consumers. This will not only help us to

ensure that 100% of value-chain is in the hands of farmers, it will also enable us to counter the

might of organised retailing. Dairy cooperatives inspired by our ‘Amul model’ have already

transformed the lives of 12-million farmer households, in more than one lakh villages across

India. We have succeeded because we have placed the instruments of development in the

hands of the farmers, themselves. An enabling environment will enable our organisation to

continue playing a lead role in ensuring sustainable socio-economic development of rural India.

I now present to you, our Federation’s Annual Report and the Audited Accounts for the year

2006-2007.

REVIEW OF OPERATIONS

MILK PROCUREMENT

Total milk procurement by our Member Unions during the year 2006-07 averaged 67.25 lakh

kilograms (6.7 million kg) per day, representing a growth of 4.5 per cent over 64.38 lakh

kilograms (6.4 million kg) per day achieved during 2005-06. The highest procurement as usual

was recorded during January 2007 at 84.09 lakh kilograms (8.4 million kg) per day. This

increase in milk procurement is very impressive, keeping in mind the massive loss suffered by

our farmers due to floods during the monsoon season, specially in Surat district.

SALES

During the year, sales of our Federation registered a growth of 13.4 per cent to reach

Rs. 4,277.84 crores (Rs. 42.77 billion). This is an extremely impressive growth, when viewed

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from the perspective of 29 per cent growth that we had achieved last year. In global terms, we

have now become a billion dollar organisation.

I am also pleased to note that our Federation has done remarkably well in most of the value-

added consumer packs. Sales of Amul Milk in pouches have grown by 40% in value terms.

Similarly, sales of Ghee in Amul and Sagar brands have also grown by 28%. UHT Milk has also

shown an impressive value growth of 25%. With the highly successful launch of Amul Kool

Café, our sales value in the Flavoured Milk segment has seen an exponential increase of 55%.

We reaffirmed our status as the undisputed leader in Ice-cream segment, by registering

impressive growth in sales. In line with our policy of continuous innovation, we have launched

Probiotic and Sugar-free Ice-cream to cater to the growing health conscious segment.

Our sales in Amul Processed Cheese have shown consistent and very impressive growth, year

after year. In 2006-2007, we recorded 20% growth in value sales for Cheese, yet again. We

managed to register double-digit value growth in Butter and Milk Powders, despite intense

competition in these categories. We have introduced an entirely new range of chocolates in

world-class packaging, under the brand name Amul Chocozoo. In the health-spread category,

Amul Lite and Delicious Margarine have performed extremely well, with a combined growth of

58% in sales value.

RETAILING

The advent of modern format retailing has led to a sea change in purchasing behaviour of

consumers. While large retail chains do provide some convenience to consumers, historically

they have rarely had any beneficial impact on farmers who supply agricultural produce to them.

Across the world, it is observed that the farmer’s share in the consumer’s rupee, keeps on

declining due to the rising bargaining power of supermarket chains. This phenomenon will

definitely take place in India, as well, within the next few years. To counter this, we have

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decided to set up our own Amul Preferred Outlets (APOs), all across the country.

GCMMF ventured into organised retailing in 2002 with a view of getting closer to the consumer

and provide her the complete brand experience. We have made our presence felt by creating

several strategically located parlours, in a short period of time. The entire expansion drive is

based on the franchisee route adopted by GCMMF, which means an employment opportunity

for thousands of enterprising Indians. The Retailing operations would not only help farmers and

small time entrepreneurs to counter the onslaught of Modern Format stores but would also help

consumers to relish complete Amul brand experience.

EXPORT

As you are aware, the Government of India has recently banned export of milk powders till 30th

Sept 2007 and also does not allow exports based on the Letter of Credit received by us prior to

the ban. In today’s global economy, ban on exports would definitely be considered a retrograde

step. As you are aware, the milk producers of Gujarat and neighbouring states of Maharashtra,

Madhya Pradesh and Rajasthan have suffered immensely due to heavy rains and floods in June

– August period last year. This had not only reduced their income levels but had also made

them suffer losses due to death of cattle and damage to farms and property. Despite these

hardships, our milk producer members have continued to make their efforts in maintaining milk

supply which has helped to tide over the crisis period. The only ray of hope has been the hope

of realisation of better prices for their milk since international market prices have increased due

to removal of subsidy in Europe and drought in Australia in the last few months. Since the ban in

February this year, the international SMP prices have increased from US$ 3000 per MT to US$

5000 per MT. Our milk producers are obviously sustaining an opportunity loss of US$ 2000 per

MT in terms of additional realisation that we could have obtained. Further, the Ministry of

Agriculture and Ministry of Commerce have been fighting very hard since last more than 10

years at WTO to ensure that Europe removes agricultural subsidy, which results into better

prices and market access to our Indian farmers. The Indian farmers have barely started to

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realise the fruits of removal of subsidy on SMP by EU as they have seen rise in milk

procurement prices and increase in India’s presence in global dairy market. The move to ban

exports of milk powder is hurting us since India shall not be able to export part of surpluses at

the prevailing international prices that are marginally better than the current domestic prices.

The notification is also not allowing exports under para 1.5 of Foreign Trade Policy and hence

the buyers, who have made 100 % advance payment or have established Letter of Credit before

the date of ban, are also not able to import milk powders, which has tarnished India’s image as

reliable supplier.

Many of our dairies have invested in better plant and machinery by importing Capital

goods under EPCG licenses and thereby entering into export obligations. With force of ban on

milk powder, the plants will not be able to fulfil their export obligations.

Since the existing system in place for milk production encourages income

generation for millions of milk producers, it is important that the Union Government should have

policies that facilitate dairy development consistent with this profile. Equally important, the Union

Government must take necessary measures to ensure that the Indian milk producer gets a fair

chance to sell his produce in global market, which has historically been having a lot of subsidy

in milk products, and he does not face threat or erode India’s comparative advantage in dairying

as well as its competitive strengths in the sector.

During the year, our export turnover has decreased from Rs 134 crores

in 2005-06 to Rs 60 crores this year. This is due to the export ban in the last couple of months.

However, I am pleased to inform that the consumer pack exports has increased by 32% over

the previous year. Our Kool Café and Buttermilk have got excellent response in UAE, Singapore

and Australian markets. We have also started exports of Amul Ice-cream to Dubai this year. We

expect our consumer pack business to help in further improve our brand presence in our target

export markets and reinforce our position as ‘Asia’s largest milk brand’.

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DISTRIBUTION NETWORK

Overall economic growth, higher disposable incomes, changing attitude of consumers towards

spending, various alternative consumption forms, and emergence of Organised Retail throws up

challenges and also opportunities to the Distribution function of Federation. To keep pace with

the changing market scenario, in the previous years, we have increased our distribution network

in small towns. During this year we have divided markets into 14 segments to ensure improved

availability of our products. Improved distribution focus on newly launched products was on top

of our agenda. Our product lines were divided into Main Line and New Line. Separate

distributors were appointed during the year exclusively for New Line. For specific product

categories also exclusive distributors have been appointed. Separate manpower has been

earmarked for each line.

To impart concepts of modern marketing amongst our distributors an initiative of

Marketing and Sales Management Programme of our distributors have been taken. In

collaboration with a premier business school, a 2 days workshop has been designed. All

distributors of Federation will undergo this Training Programme.

Amul Yatra programme has been continuing to bring our channel

partners to Amul to give them an exposure to our cooperative institutions. This year our

emphasis was upon our newly appointed distributors and channel partners from various

business segments like Organised Retail, Caterers etc.

COOPERATIVE DEVELOPMENT PROGRAMME

During the last seven years, our Member Unions are implementing Internal Consultant

Development (ICD) intervention for developing self leadership among member producers and

thereby enabling them to manage their dairy business efficiently leading to their overall

development. During the year, Member Unions continued to implement the module on Vision

Mission Strategy (VMS) for primary milk producer members & Village Dairy Cooperatives.

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Facilitated by specially trained consultants, 901 Village Dairy Cooperative Societies (VDCS)

have already conducted their Vision Mission Strategy Workshops, prepared their Mission

Statements & Business Plans for next five years. Till today, a total of 4,428 VDCS have

prepared their mission statement and business plan. Member Unions are reviewing this

business plan every year under VMS annual revisit programme and facilitate VDCS to prepare

action plan for next year to propel the momentum gained through VMS.

The VMS module has prompted milk producers to initiate activities at villages such as

Water management, Planned Animal Breeding, Animal Feed management, Improved member

services management, Information Technology Integration and Networking, which has very far

reaching and long-term effects on the milk business. This planned management of milk

production and VDCS will not only help producer members to increase economic returns from

their milk business but also help VDCS management to face the fierce competition ahead.

Continuing the Cleanliness drive at village level, till March 2007, Member Unions have identified

& imparted training to 8,774 Core groups formed of milk producers and Management of the

VDCS. To enhance the level of Cleanliness this year 7,313 VDCS celebrated Red Tag Day on

“Gandhi Jayanti” - 2nd October and the Unions also awarded best performing VDCS.

As a part of the Breeding Services Improvement Programme, during the year, Member

Unions have continued implementation of the module of Improvement in Artificial Insemination

Services and imparted training to 212 Core groups at village level and have decided to cover all

the VDCS under Breeding Services with this module over the next year. To boost this

movement, Member Unions are also conducting Mass De-worming campaign. Further, Member

Unions implemented the AI Audit Competition during the year and in the process, identified &

awarded the best performing VDCS & AI Workers of these Societies in order to motivate them

to further improve their work.

In order to increase awareness about dairy industry scenario and impart

leadership skills to the Chairmen & Secretaries of the Village Dairy Cooperatives, Member

Unions in collaboration with Federation, are conducting Chairmen & Secretaries’ Orientation

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Programme at Mother Dairy, Gandhinagar. During the year 1,114 Village Dairy Cooperative

Societies have been covered under this programme involving 2,150 Chairmen & Secretaries of

the Village Dairy Cooperatives.

During the year, our Member Unions continued to encourage

increased participation of women milk producers in the Dairy Cooperative Societies. To develop

their skills and enhance leadership qualities, Member Unions organised Self Managing

Leadership (SML) Programme at Prajapita Brahmakumaris, Mount Abu for 1,660 women

resource persons along with Chairmen and Secretaries of 282 VDCS.

In order to strengthen knowledge and skill base of

young girls and women of the villages about milk production management and to motivate them

to implement scientific milch animal breeding, feeding and management methods for their

animals, Federation, with technical collaboration and resources of Anand Agriculture University,

has initiated “Mahila Pashupalan Talim Karyakram” for women resource persons of the Member

Unions. It is envisaged that women resource persons trained through this programme would

lead the torch light in villages to facilitate women milk producer members to increase

productivity per milch animal and in turn improve the livelihood of their fellow milk producers

household. During the year, 99 women resource persons have been trained under this

programme. To meet the differential nutritional requirement of

animals, we have started marketing of cattlefeed in four different variants under Amul Super

dan, Amul Power dan, Amul Josh dan and Amul Purak dan brand names. During the year, total

sale of cattlefeed under these brands is 50,060 MT which is 22% higher compared to previous

year. On the basis of results of Animal Survey carried out by

MUs, it is observed that there are large number of NPG - NECO (Non Pregnant Not Even

Calved Once) animals in milkshed area of MUs. Therefore with an objective to reduce NPG –

NECO animal population and to improve productivity of milch animals it is envisaged to initiate

Fertility Improvement Programme (FIP) and Productivity Enhancement Programme (PEP) in

village dairy cooperative societies affiliated to member unions in coming years.

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In our sustained effort to professionalise the dairy cooperative sector and create a pool of

talented manpower to serve the rural producer, we continue to support the Institute of Rural

Management, Anand in several ways. We provide financial assistance to 15 deserving students

in form of Amul scholarship, with a financial outlay of Rs. 15 Lakhs per annum. We have already

decided to continue this support for another five years.

INFORMATION TECHNOLOGY INTEGRATION

GCMMF has further advanced its Information Technology solutions by enhancing its customised

ERP System (EIAS & Web EIAS) to improve its operational efficiencies.

“Communication” is the key word to achieve highest level of performance in today’s competitive

business environment. To strengthen the Business Linkages with the business partners of

GCMMF, we have deployed “Amul e-Groupware System”. The said system facilitates two-way

Online communication with the business partners and helps in improving the performance.

It has also successfully deployed Customer Relationship Management (CRM) solution

with a personalised mailing list manager. The said system helps us in informing a large number

of customers about our product launch, consumer schemes, recipes etc. instantly and get their

feedback. Your Federation has also further advanced its Geographical Information Systems by

implementing the same at all Milk Marketing Offices to smoothen its supply chain management

and to improve operational efficiencies.

MOVING TOWARDS A GRAND FUTURE

It does not require a crystal ball to sense that dairy cooperatives in India have a gruelling &

arduous journey, ahead of them. The phenomenon of liberalisation and globalisation cannot be

wished away and we have to prepare ourselves for the future, by leveraging on our inherent

strengths. The core foundation of co-operation is the principle of ‘mutuality’ and pooling of

resources. The very nature of the dairy industry ensures that an organisation, which wishes to

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grow exponentially, has to make the best use of all available resources. Our scope of operations

will have to be streamlined, in a manner that will enhance our cost-competitiveness and

effective customer servicing in all parts of India and abroad. Our Federation and all our Member

Unions will have to work in tandem to achieve this cherished desire.

Our Member Unions have taken a revolutionary step forward, by integrating liquid milk

marketing operations in all districts of Gujarat, under the common ‘Amul’ brand. This has

enabled all Member Unions to benefit immensely from the substantial investment that your

Federation has made in advertising ‘Amul Milk’ on national media. Consequently, ‘Amul’ has

now possibly emerged as the largest milk brand in the world and has become a force, so potent,

that even the largest multinational would hesitate in taking on our might.

It is obvious that if our nation is to witness true development, then dairy cooperatives

will have to play a vital role in transforming the socio-economic landscape of rural India. It will

not be sufficient for dairy cooperatives to enjoy outstanding success only in isolated pockets

within the country. We have been serving as the ‘role model’ for dairy cooperatives across India,

for more than half a century. We need to ensure that we continue to inspire other dairy

cooperatives in a manner, which will enable them to play a lead role in socio-economic

development of their respective regions. A strong dairy cooperative movement in the country will

generate a momentum so powerful, that it will propel Indian economy and society to occupy

centre stage in the global scenario. It would definitely enable the Indian farmer to emerge as a

powerful social, economic and political entity.

The new generation of cooperative leaders from Gujarat will have to

demonstrate exquisite leadership qualities and display a rare level of maturity. We need to

master the art of managing contradiction and skillfully resolving conflict within the democratic

framework. We need to ensure that we project an identity which is in tune with the image of

brand ‘Amul’ as perceived by consumers. We also need to personify the core values of our

organisation, such as integrity, commitment to farmers, customer-orientation, excellence,

innovation, belongingness, quality, co-operation and employee-satisfaction. Effective leadership

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skills will also help us to tide over any manpower crisis in future, since enhancing employee

motivation can minimise employee turnover. We need to evolve a code of conduct for

governance and ensure strict adherence to the same.

These measures will certainly help to

fructify the dreams of Dr. Verghese Kurien, Shri Tribhuvandas Patel and Shri Motibhai

Chaudhary; whose vision it was to make ‘Amul’ an instrument of national development.

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THE AMUL CONCEPT

BUSINESS needs ideas, not merely money. Ventures run on just money, but starved of ideas,

would eventually fall prey to competition and perish. And, if ideas are available in abundance,

business can overcome other handicaps, including its relative weaker money power, compared

to that of its rivals. The success story of the Gujrat Co-operative Milk Marketing Federation

(GCMMF) proves this point.

GCMMF, known through its popular **desi brand, Amul, budgets its turnover currently

around Rs 2,250 crore, to reach a staggering Rs 10, 000 crore by 2006-07, capturing a greater

market share, confronting even MNC brands with greater wherewithal.

Generally, food products being consumable, are recession-proof. Mckinsey has

estimated that the food processing industry has a market of $60 billion in India. Given this huge

potential, what specific ideas of Amul ensure its rapid growth?

Amul's central idea seems to be that of marketing for the poor to use the

expression of the eminent Management guru, Mr C. K. Prahalad. The latter identified that India

has enormous potential in taking its various products and services to the masses at affordable

prices. Amul's latest offer, Amul pizza, is priced attractively around Rs 20, at a fourth of its

competitors. Such price-leadership is possible by:

*Cost-effective production, including primarily, procurement of milk from over two million dairy

farmers which, in turn, assures poor farmers reasonable prices.

*Climbing up in the value-chain by diversifying in value-added products, such as milk sweets,

ice creams, pizzas, confectioneries, truly as a food company, rather than merely selling milk, to

be known only as an organised milk-vendor.

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*Sustained building of loyalty of customers, not by promoting individual products, but all

products under the umbrella of its premium brand, Amul, by investing a good 40 per cent of its

ad budget towards brand promotion.

*Facilitating reach to customers throughout the country by a strong chain of distribution outlets.

The investment in relationship with business partners -- both farmer-based co-operatives and

distribution net-works -- for purchasing and selling functions respectively, enables Amul enter

into any food category without much time or investment.

Thus, in just less than 15 days after launch, Amul was able to sell 19,000 pizzas everyday, and

expects this figure to go up to 100,000 by the end of this financial year. The novelty in concept,

right from sourcing of basic ingredients, cost-management, production, marketing, distribution,

selling all tailor-made to country-specific requirements -- seem to reward Amul.

True, multinationals generally have certain inherent strengths such as technology,

brand, financial muscle power, global experience and so on. But, equally true is that such firms

by their very nature, cannot operate below a certain cost-level, in certai n niche areas, where

the country naturally offers cost-advantages.

It is precisely for this reason that there have been increasing shifts of

outsourcing of various back-office functions, and IT-enabled services from companies abroad in

a variety of businesses, that are expected to reach a huge $17 billion per annum by t he end of

2008. At a time when Indian business houses lament high cost of production owing to high

input charges -- be they power, port, freight, taxes, octroi, cost of capital and other transaction

costs -- identifying such niche areas themselves lead to competitive ad vantage. And, if such

specific segments are further pursued with sound strategies, to sustain those business

strengths and to constantly compete with the global players, Amul's idea is worth emulating, is it

not?

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INDIAN MARKETING

India has not successfully have a global brand before few years but now it is one of the most

emerging economy and the whole world and corporates have their eyes on the country. Tata,

Infosys, various It and BPO’s companies have successfully created brand.

The big theme of the day at AdAsia 2003 was the growing trend of global Indian brands (GIBs).

Presentations by Reliance chairman Mukesh Ambani and Aditya Birla group CMD Kumar

Mangalam Birla on the creation of a country strategy for Brand India only underscored the

complementary micro development of the emergence of GIBs. It was also a day when home-

grown Indian companies were highlighted. These included the AV Birla group, Reliance, Tata

Consultancy Services (TCS) and Ranbaxy.

A lot of work needs to be done to develop Indian brands as a Chinese business brand breaks

into the global Top 20.

India has the largest number of brands in Asia and has the second highest number in

the world, but how many Indian brands truly resonate around the globe? Certainly Chinese

brands are starting to become known – with one, Chinese Mobile, making a sparkling entry at

No 4 in the global top 20 brands.

Indica drives Tata to the top of Indian brands

Tata has emerged the top Indian-owned brand in A&M magazine’s top brands survey. It is

ahead of other homegrown brands such as Nirma, HMT, Godrej, Fevicol, Dabur, Amul, Hero,

SBI and Bisleri.

But among Indian and foreign owned brands in India, Tata ranks third behind Colgate,

the leader, and Dettol. The fourth and fifth slots have been bagged by Hindustan lever soap

brands, Lux and Lifebuoy, respectively.

Interestingly, in the last top brands survey carried out by the magazine in 1999, Tata

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occupied the 22nd spot. Since then, it has leapfrogged into the top bracket. Tata’s gain has

been Amul’s loss, it slipped from the second place in the 1999 survey to 42 this year.

Desi brands in foreign lands

Made in India and meeting success overseas? Yes, it’s happening in scores. Reasons range

from lower trade barriers to hard-core marketing. Catalyst looks at the trend.

DABUR CHYAWANPRASH in the US, Kingfisher beer in the UK, Kinetic scooters in Latin

America, Zodiac shirts in Holland, Amaron batteries in Singapore, Nightingale diaries in Europe,

and Hidesign bags in Norway!

In the Indian context, it’s a case of globalisation in reverse. At a time when the Indian

marketplace is teeming with multinational brands across categories, Indian brands have been

quietly creating a foothold for themselves overseas. Ranging from food products, cars, two-

wheelers, fairness creams, carpets, ayurvedic products, herbal cosmetics, watches, liquor,

clothing, leather bags, even diaries - the gamut of Indian brands that have made it on to the

global map is mind-boggling.

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BUSINESS ON BRANDS

The cola majors are back with their marketing blitzkrieg. Due to controversy behind Pepsi-Cola,

the market was cold but now they are back with new ad campaigns with more creativity and

works.

The company decided to involve lots of non-cola beverages like juices, energy drinks,

tea and coffee. Pepsi is learnt to be planning to launch its Tropicana Twister from a long time. In

India Coca-Cola India more emphasis on increasing coffee and tea brand Georgia’s presence

and preparing for the launch of juice brand Minute Maid.

Coke claims that Maaza is now the largest selling fruit drink brand, beating the

likes of Frooti and Tropicana. There are also plans to increase the presence of Georgia Gold

Frosts, the cold tea and coffee vending machines. Minute Maid, the juice brand to be launched

by Coke early next year, the plans are to launch it first in hotel chains. The flavours to be

launched in India are being decided upon Cola sales are on a decline globally. In India, the last

one year has seen non-cola beverages grow 3-4% higher than colas. Therefore it is felt to focus

on juices, energy drinks, tea and coffee more.

Tata brand bag fattens further

“The brand image is monitored through bi-annual ‘brand health checks’ and the evidence of

strength and renewal is very clear,” said Mr Gopalakrishnan. When compared with global

brands, the Tata brandwouldhave been the 58th. brand from among the top 100 global brands.

The brand building efforts include a press campaign for launching the brand and a multimedia

campaign for The Century of Trust, the support of sports activities like the Tata Open Tennis

tournament and Narain Karthikeyan for Motor Racing, launch of the business quiz. The funds

are also utilised to create awareness of the Tata brand and the Tata way of doing business

internationally. In South Africa, where the Tatas are investing in a big way, the brand building

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exercise involves mobile exhibitions, organising lectures at various management institutions and

starting an adult literacy programme.

Pizza Hut to improve brand visibility

Wieden & Kennedy has won the £10 million Pizza Hut account following a four-way pitch

against Clemmow Hornby Inge, WCRS and Bartle Bogle Hegarty. The win adds to the £4.5

million-worth of business the agency brought in last week when it triumphed in the Sky One

pitch against Clemmow The brand’s advertising will now focus on raising the profile of the

business. W&K will provide a brand idea for the restaurant chain suitable to run across all

media. The first campaign will break in six weeks and ads will focus mainly on TV and radio.

Pizza Hut has recently extended its menu to include healthier options, such as the Hi-Light-

branded low-fat pizzas and a bigger range of salads.The 616-outlet Pizza Hut chain, a joint

venture between Whitbread and Yum! Brands, plans to open a further 65 restaurants this year.

IIM alumni to create global brand

On June 11, as about 150 alumni of the Indian Institutes of Management gathered for the first

ever pan-IIM alumni conference in the US. Vivek Paul, president of Wipro Technologies, gave

the keynote speech on “Building Global Organizations,” while the rest of the day was devoted to

sessions on launching and shaping a new IIM alumni organization. IIM-USA interim president

Ashima Jain said that there are between 1,500 and 2,000 IIM alumni in the U.S., which is now a

“critical mass” to form chapters, hold pan-IIM events and interact with IIM graduates inother

countries More than 450 IIM alumni from the six institutes are now brainstorming through an IIM

focus group on Yahoo, with more being added each day, said Jain, an IIM-Ahmedabad

graduate who works in the transaction services structuring departmentat

PriceWaterhouseCoopers in SanJose,Calif.

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Bharti Airtel plans mega brand push

Hong Kong’s Hutch made history of sorts in terms of cellular brand recall with its popular

catchline: ‘Wherever you go, our network follows’. Now, Bharti Airtel plans to go a step further. It

is poised to unleash a no-holds-barred national brands blitz in early September.

A campaign that aims to not merely bring home the robustness of Bharti’s 23-circle cellular

network, but also underscore the depth of Airtel’s basket of value-added services on the

network. The proposed Bharti Airtel brands blitz comes on the heels of the company inking a

$1bn network expansion deal with Sweden’s Ericsson. Bharti has just asked Rediff DY&R to

develop the creative campaign.

“Our upcoming national brands campaign will go beyond just a voice network and will

position Airtel as an innovative network that allows a subscriber to do whatever he pleases —

be it gaming, music downloads, news, watching video-clips to GPRS in any location. Which is

why, we have encapsulated the essence in a single line, ‘Go wherever, do whatever’.

The campaign is being developed as a mass interest one that consumers can

identify with, and not just on the business applications of a cellphone.

Amul to become world’s largest liquid milk brand

Amul is set to become the largest liquid milk brand in the world after the consolidation of

Gujarat’s milk cooperatives which envisages bringing all district milk brands under the Amul

umbrella brand. Until now, Amul’s marketer GCMMF claims, it is Asia’s largest milk brand.

The market of the Amul brand of liquid milk will increase by 36-38 lakh litre per day to

45-46 lakh litre a day, once the district-level milk brands are phased out. The market size for

Amul milk will increases further by 2 lakh litres if sales from liquid milk in paper box packs are

also added to pouched milk sales.

The sales of the ‘Amul’ brand of liquid milk would also cross Rs 1,000 crore from

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about Rs 900 crore at present. The Gujarat Co-operative Milk Marketing Federation (GCMMF),

the apex marketing body of dairy co-operatives, sells about 35 lakh liter Amul brand of liquid

milk per day in parts of India.

Last week, a majority of the GCMMF board members had agreed to phase out

district level liquid milk brands, among them being Sumul of Surat, Baroda Dairy of Vadodara,

Dudhsagar of Mehsana and Gopal of Rajkot. Bhatol added that brand Amul would help the

smaller unions to compete with unorganised players more effectively.

Amul will become probably world’s largest selling liquid milk brand. Amul

brand will get additional market of over 11 lakh liter milk per day once the new arrangement will

be in place. The total sale of Amul milk would be in the region of 48 lakh liter per day

Govt allows 51% FDI in single brand retail showrooms

Despite the mounting pressure from Left parties, the Manmohan Singh government has decided

to allow foreign direct investment (FDI) in retail outlets meant exclusively for ‘single brands’.

This will allow multinational giants to invest in Indian outlets meant for premium brands like

Chanel, Nike, Louis Vuitton, Gucci or Reebok. Foreign companies will be allowed to invest up to

51% in joint ventures that set up such outlets.

The Cabinet also decided to allow 100% FDI through the automatic route in power

trading, greenfield airports, petroleum marketing infrastructure, warehouse for coffee and

rubber, industrial explosives, diamond mining, hazardous chemicals and coal mining for captive

use. The proposal to open up ‘branded retail’ for FDI was kept on the backburner due to the

opposition from the Left parties. But the government has opted to march forward, probably in a

bid to lift the cloud hanging over the Capital due to the political developments in Karnataka and

the Supreme Court ruling on the Bihar assembly dissolution.

Commerce and industry minister Kamal Nath had proposed the opening up of ‘branded

retail’ to FDI. The move would help the government test the waters by gradually opening up

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major segments of retail to FDI. Investment in these premium brands would not hurt mom and

pop stores, as reported by the government officials.

SUGGESTION

AMUL constitutes a considerable share in the national Diary co-operative. Keeping in view the

importance of diary products, concerted efforts are required to be made to further promote the

export of Diary Product. There is a good scope for India to take advantage of the new trade

opportunities for promoting the export of diary product. This can be achieved if production is

made as per the requirements of international markets by increased investment in Research

and Development coupled with export friendly trade policies.

The following are few of the measures suggested to sustain the AMUL in future:

1. Breeding programme may be initiated to develop high export quality product to enable

the exporters to sustain their export in future.

2. Survey may be conducted to identify export quality belts/zones for production of dairy

product to meet the requirement of exports.

3. Extension activities may be strengthened to educate the dairy product for production of

quality product to match the standards of international markets.

4. Low cost production technology may be developed to bring down the cost of production

to enable the distributor to compete with competing other product in the Indian markets.

5. Proper arrangements of Supply Chain may be made for procurement and processing of

dairy product purpose as per the requirement of different States in India.

6. The existing dairy will produce and process milk into products, the new joint venture

companies will sell them under the Mother dairy brand.

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7. The existing brands of the dairy federations will have to be surrendered to the joint

venture, in which MDFL will have 51 per cent equity. The Amul brand, owned by Kurien's

GCMMF, will thus have a formidable rival in Mother Dairy.

8. I am confident AMUL will act in the best interests of farmers and advise the NDDB to

abandon its joint venture plans and pursue the `cooperative strategy' to give a further

impetus to dairy development in India. In case, they wish to support the cooperatives in

form of market development through forming joint ventures with cooperatives, we

recommend that the government advises the NDDB to consider following options for

shareholding pattern in the JVCs.

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CONCLUSION

It is well recognized that markets that are fragmented or producers that are too small to build

competitive infrastructures or those who are unable to manage technological changes in their

operational processes would benefit the most through a cooperative organization. Consequently

a large number of cooperatives have taken roots amongst producers of food (especially those

that are perishable). However, there are interesting cooperative formations in India and China

that are starting to emerge amongst small producers in auto-components (especially those

serving the replacement markets), amongst small scale dyeing communities and the power-

loom operators in the textile industry. In these cases, the producers are coming together to

develop a common brand that is based on stringent quality certifications that would distinguish

them from other small producers and for usage of common property resources. The example of

AMUL provides a number of lessons for such organizations to compete successfully in the face

of increasing globalization and competition. More generally, the AMUL case presents a

successful model for operating in emerging economies characterized by either large under-

developed suppliers and/or markets with high potential.

The largest segment of the market in emerging economies desires value for money from its

purchases. Development of such markets requires careful nurturing and a long-term approach.

Initial success in these markets is typically based on a low price strategy (providing value for

money) supported by cost leadership. This strategy helps to grow the market exponentially by

focusing on the largest segment of the population, the middle and the lower middle class. In this

context, it is important for global players to note that the value proposition perceived by

consumers is influenced to a large extent by the state of markets and the economy and cultural

factors. Development of an appropriate value proposition suitable for large mass markets in

India requires a thorough understanding of the environment and a focus on costs. This in turn,

requires designing the organization structure and practices in a manner that it delivers

continued market share through cost leadership. AMUL is a good example of this strategy.

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Firms that are able to develop control processes through better use of operational practices and

supply chain coordination are the ones that are able to serve large volumes and enjoy top line

growth in revenues.

Development of suppliers likewise requires nurturing with a long-term perspective. It is

interesting to note that this was achieved by AMUL through a process of education and social

development activities - activities that are not usually considered to be standard business

practices. This type of ‘out of the box’ vision is essential for developing innovative mechanism in

new, unfamiliar environments where building of relationship with consumers goes much beyond

marketing messages and useful product offerings.

Environments with underdeveloped markets and suppliers (as in the case of AMUL) add one

more dimension of complexity relating to the relative pace of growth of these two areas.

Through its pricing strategy, AMUL has been able balance the growth in markets and suppliers

and has achieved some degree of synchronization. Otherwise, gaps between demand and

supply would require complementary strategies.

The AMUL example is also instructive for multinational companies and others contemplating

operations in emerging markets by taking advantage of the local small and medium enterprises.

In such cases large businesses are built by forging linkages with these enterprises thereby

changing the boundaries of the entering firm. Such a partnership reduces the operational risk

while providing a credible source of understanding the behaviour of the consumer through the

experience of partners. It also provides operational flexibility and makes the network responsive

to changes within and outside. To be effective it is important that decision-making be

decentralized to the extent possible, with appropriate coordination mechanisms to ensure

consistency in the system. The leadership of such organizations have always been larger than

life and have been seen to play an important role in the building of the society even today.

Firms that are able to overcome the hesitation of deploying IT for achieving operational

excellence in emerging economies gain considerably from its network effect. Most firms either

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automate decision making to such an extent that it eliminates local initiatives (as many SAP

implementations in India are finding out that it has added more rigidity in decision making as

opposed to using it in conjunction with a more flexible “telephone” mode of communicating) or

use manual systems that lead to inaccurate data based decision-making. What works best is IT

for information sharing and evaluating complex tradeoffs while making decisions locally. Yet

another strong trend in these economies is to use IT for managing the interface between the

market and the supplier of goods and services.

In this article, using the example of AMUL, we have presented a robust business model for

operating in large emerging economies characterized by underdeveloped markets,

infrastructure and suppliers. Cooperative network with interlocking arrangement as in GCMMF

is one example of success in managing such complex supply chain. Of course, the long-term

challenge in such cases is to bring more members into the network and increase their

capabilities.

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REFERENCES

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Barnes, D.M. and C.E. Ondeck (1997) “The Capper-Volstead Act: Opportunity Today and

Tomorrow,” in commemoration of the 75th Anniversary of The Capper-Volstead Act, presented at

the Annual Conference of the National Council of Farmer Cooperatives’, National Institute on

Cooperative Education, Pittsburgh, August 5.

Baviskar, B.S. (1988) “Dairy Cooperatives and Rural development in Gujarat,” in Who Shares?

Cooperatives and Rural Development, Eds. D.W. Attwood and B.S. Baviskar, 346-361, Oxford

University Press, New Delhi.

Baviskar, B.S. and Attwood, D.W. Finding the Middle Path: The Political Economy of

Cooperation in Rural India,” Vistar Publications, New Delhi,1995.

Blayney, D.P. and A.C. Manchester (2000) “Large Companies Active in Changing Dairy

Industry,” Food Review, 23, 2, 8-13.

Enderwick, P. and M. Akoorie (1996), Fast Forward: New Zealand Business in World Markets,

Paul Longman, Auckland.

Hamm, L.G. (2001) “Co-ops and the Transformation of Global Dairy Relationship,” Rural

Cooperatives, November/December, 21-30.

Hansen, D.R, P. Ingerslev, F-Junge-Jenses, H. Roed-Thorsen, H. Tetzschner and A.

Westenholtz, (1980) “Producer Cooperatives in Denmark,” Acta Sociologica, 23, 4, 311-315

Heredia, R. (1997) The Amul India Story, Tata McGraw Hill, New Delhi.

Kurien, V. (1997) The Unfinished Dream, Tata McGraw-Hill, New Delhi.

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Kyriakapoulos, K. (1998) “ Agricultural Cooperatives: Organizing for Market-Orientation,”

mimeo, The Netherlands Institute for Cooperative Entrepreneurship, Nijenrode University, The

Netherlands.

Karg, P.J. (2002) “Rising to the Top: Small Wisconsin Specialty Dairy Co-ops Finding New

Niche Markets,” Rural Cooperatives, July/August, 6-10.

Mergos, G. and R. Slade, (1987) “Dairy Development and Milk Cooperatives: The Effects of

Dairy Projects in India,” The World Bank Discussion Papers 15, Washington, D.C.

Parthasarathy, G. (1991) “White Revolution, Dairy Cooperatives and Weaker Sections,”

Economic and Political Weekly, A177-A183.

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Give your views about the Indian branded and packaged foods industry with respect to AMUL and the Global Dairy Industry.

___________________________________________________________________________

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Give your views about the impact of AMUL’s Brand into food industry.

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Define AMUL’s product range.

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Give your views about the challenges faced by the AMUL with respect to the possible marketing and promotional strategies.

____________________________________________________________________________

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Define the marketing Policies and Distribution Network adopted by the AMUL.

____________________________________________________________________________

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Give Your View On Operations & Supply Chain Management In Amul.

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Define the view on AMUL POLICIES & DISTRIBUTION CHANNEL.

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In AMUL, which product the company sells the most?

Butter Chochlate

Cheese Ice-Creame

Milk Others

Which factor, you consider as most important factor in consumer purchase decision?

Quality of product Dealer’s margin

Advertisement brand position

Rate of Product

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