Indian Dairy Association (West Zone)

Chairman
National Dairy Development Board

Inauguration of the XXXIV Dairy Industry Conference
Bangalore, 23 November 2005

Dr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission; Shri H.D. Revanna, Minister for PWD & Energy, Govt. of Karnataka; Shri Animesh Banerjee, President, IDA, delegates and friends…. I am happy to be here today to deliver the Keynote Address of the Thirty Fourth Dairy Industry Conference.  Two years ago, I had the opportunity of delivering the Keynote Address at the Dairy Industry Conference at Chandigarh. The theme on that occasion was “Indian Dairying:  Positioning Globally”.  The theme for this Conference, “Indian Dairying – Road Map to meet the emerging challenges”, is in effect a continuation of the theme on positioning Indian dairying in a global context.I would therefore like to draw upon some of the thoughts that I had shared with you two years ago and build on them to offer some suggestions on how we could work together on a road map that leads to a more healthy and vibrant national dairy industry. The very first step in preparing a road map is to be clear where you want to reach.  I would like to reaffirm our belief that the fundamental goal of dairying in our country is not milk and milk products.  It is the women and men who care for our animals and produce our milk.  Our goal has always been – and remains – helping these rural producers to increase their incomes and to improve the quality of their lives.

For the hard-headed businessmen of our industry, let me offer the rationale that I believe continues to underline the relevance and importance of our approach. I think most of us would agree that whatever our field of endeavour, we must first consider the broader national interest.  Even for purely commercial concerns, we must recognize that the long-term success of any firm depends at least in part on the sustained economic growth of our nation.  That said, there is an increasing body of empirical evidence that economic growth is linked – even dependent on -- the vitality of a nation’s agricultural economy.  That evidence also strongly suggests that the growth of the agricultural economy must be concentrated in the low and medium income producers.  The reason for this is that it is their investment in local growth centres that becomes the driver for broader and deeper economic growth.  As these small and medium producers begin to earn disposable income, they spend it locally triggering a variety of economic activities and increasing employment.  Their consumption is local and national.  Their savings are local and national.  For those who would like to read this argument in more depth, I would suggest you look at the work of economists like Mellor, Denninger and Squire, Ravallion and Timmer.

Dairying can and does play a uniquely important role in increasing incomes among our landless, small and medium farmers.  We would estimate that during the last year, total income from milk came to something over Rs. One hundred thousand crores.  As dairymen you are well aware that milk has exceeded our major cereal crops in terms of agricultural income.  However, what is as important as the magnitude of income is its distribution.  I will cite a brief section from a paper by John Mellor that highlights the unique value of dairying to our agricultural and national economies:

Sharma and Poleman (1993) provide important evidence for India that the distribution of income (as reflected in the Gini coefficient) varies substantially among sectors and hence, that changing the rates of growth for sectors will change the Gini coefficient even if the coefficient is stable for each sector. We will deal with structural aspects later.

Important to the later discussion, they show the increments to crop income alone skews the distribution towards the well to do, with a Gini coefficient of 0.86, far above the Gini coefficient for the economy in total. That finding is of course consistent with the views of early critics of the green revolution. In sharp contrast to crop income, the Gini coefficient for dairy production, which is very important to the poor in India because of its labor intensity, is 0.11. That is an extraordinarily low Gini coefficient. And, the Gini coefficient for off-farm work in rural areas is a still low 0.22. Thus, when rising agricultural incomes are spent in those sectors they redistribute income. When we first became aware of the importance of income from dairying on economic growth, we were not surprised.  Rather, we found it an important confirmation of the validity of one of the underlying goals of Operation Flood.

There is a second rationale for the focus on dairying by small producers – production by the masses rather than mass production.  That is “competitive advantage.”  As most of you know, India is one of the world’s most competitive dairying nations.  While there are some who contend that we should now shift to a more western, commercially-oriented dairying, those who are knowledgeable recognize that our reliance on a labour rather than capital intensive dairying, our very low use of energy at the farm level, our farmers’ use of crop residues and byproducts, are all major elements in the low cost of milk and milk products.  Given our comparative costs of power and borrowed capital, not to mention the costs of diverting crop land to fodder, smallholder dairying, as practised in India, is a major reason why India holds a relatively strong competitive position in world dairying.

That said, dairying that engages literally millions of small farmers dispersed through tens of thousands of villages, with each producing and pouring relatively small quantities of milk, poses unique challenges.  Meeting those challenges is the key to achieving the potential dairying offers to our nation and our rural people. Three of these challenges – raising productivity, improving quality and information and knowledge management – are directly dependent on reaching and serving our tens of lakhs of farmers.

Raising Productivity

We can take some pride in our achievements in productivity.  For some years now, we have seen an approximately four percent average annual increase in milk production.  This is a tribute to the partnership of cooperatives, Government and some private sector players in the fields of animal nutrition, breeding and health care.  But sustaining these increases over time, and doing so in a way that is ecologically sustainable and affordable to the vast majority of our farmers, is critical to the future of Indian dairying.

Let me turn first to nutrition.  Feed amounts to about 70 percent of the cost of milk.  Our ability to compete depends significantly on lowering the cost of feed while improving overall animal nutrition.  Even today, most of our national herd depends on a ration that does not meet nutritional requirements.  Inefficient feed utilization raises the cost of production.  This problem is even greater during periods of drought when misdirected and poor use of limited feed resources not only affects short-term productivity, but can produce irreversible damage to large numbers of affected animals.

Today, out of 45 million metric tons of raw materials available for our livestock, only five to six million tons are being used in feed manufactured by our organized sector.  Feed manufacturers regretfully continue to produce one type of feed throughout the year for animals of different ages, different stages in their production cycle.  Such feeds do not take into consideration feed available locally with the farmer.  Worse still, in the absence of any law governing feed – much of the feed sold in the market is of questionable quality.  Lacking faith in these feeds, farmers continue to feed traditional crop residues and byproducts, sometimes overfeeding their animals but more often underfeeding them.

We do have the results of research and development that has highlighted and pinpointed micronutrient deficiencies, even at the district level which needs to be corrected through the feed.  Research and development efforts have also resulted in technologies such as bypass protein, enrichment of crop residues in the form of blocks, pellets and briquettes, etc.  But our feed manufacturers largely ignore these products while our extension services fail to educate farmers in their use even when they are available.  What is needed is:  (1) continued research on cost-effective feeds that are appropriate to the specific nutritional needs of milch animals in specific areas and (2) extension services that are knowledgeable about innovative approaches to feeding and energetic in taking these to the farmer.

The second leg of increased productivity is breeding.  For more than thirty years, breeding has been undertaken in our country, and on a substantial scale.  But the measure of success continues to be the number of inseminations carried out.  This is not only not scientific, it simply doesn’t make sense.  What counts is conception:  the birth of an animal with the potential to perform better than its dam.  If we even estimate the number of inseminations to produce a conception, it is clear that this has hardly been an efficient, effective and economical effort.

More important than the emphasis on conceptions rather than inseminations is the quality of semen.  Today our country’s 60 semen stations have about 2,000 breeding bulls, a number of which are of questionable quality.  About one-third of these need to be replaced annually.  However the question of who should be responsible for providing breeding bulls and how the costs should be met continues to remain a matter of debate.  Quality semen can only come from quality sires.  The only way to ensure quality sires is to progeny test. This is a challenge in itself given the large numbers and dispersion of our animals.  But it must be done and on a much larger scale than exists today.  The Central Government’s recent prescription of standards and specifications for semen that is marketed is a welcome step.  We now hope that an enforcement mechanism will be put in place to ensure that only certified semen is made available to farmers.

If we are to achieve quality AI, then insemination must be at the farmer’s home.  To do this, AI needs to be privatized and available at a charge that is economical both for supplier and producer.   We must accept that quality service, quality semen has a cost.  Accountability for improving productivity and incomes cannot be achieved through poor quality semen and AI at heavily subsidized prices as is the case today.  If we do so, we should be able to raise artificial insemination from the existing 12 to 15 percent to around 40 percent over the next decade.

The last pillar of productivity is disease control.  We continue to emphasize clinical services at the cost of prevention of disease, with the result that endemic diseases – Foot and Mouth Disease, Infectious Bovine Rhinotracheitis and Brucellosis – are still widely prevalent.  The Government must rethink the role of the state and the private sector.  The former should be responsible – and accountable – for disease prevention.  This is clearly a public good.  Curative services should be rapidly privatized.  While Government is, in the 10th Plan making a major investment in the control of FMD to create disease free zones in areas where animal productivity is high, we would urge that the vaccination in these zones be accompanied by eartagging every animal.   It is essential to put in place an animal identification system as this is the first step towards traceability which is emerging as a global demand.  Further this vaccination is provided free.  In our view, farmers must be persuaded to meet the cost of the vaccine which is half the cost of a litre of milk annually and certainly affordable by any farmer, while Government can meet the cost of vaccination, laboratory services etc., that are essential components of a vaccination campaign.  Only then will a vaccination programme be sustainable in the long term.

With globalisation and free trade and greater and faster travel, for any country in the world endeavouring to isolate itself and build barriers around itself through legislation, is futile.  Therefore there is a need for countries to individually and collectively put in place processes that will control diseases.  The time has come for our Government to dialogue with other Governments at sub-continent level.

But for disease control to be made legally possible a Central “Prevention of Infectious and Contagious Diseases in Animals” Act is required.  It is a matter of grave concern that this legislation has remained pending for close to two decades.

Improving Quality

All of us here are aware that with all of milk’s beneficial qualities, it can also carry pathogens, toxins and other elements that endanger the consumer.  We have a moral as well as a legal need to ensure quality.  We also know that if India is to participate in international markets for dairy commodities, we must meet or exceed international quality standards.  I would even argue that our own domestic market is vulnerable if we cannot consistently match the quality of imports.

Because our milk comes from millions of small producers, improved quality can only be achieved through investment.  Substantial investment.  Farmers must be educated.  Equipment must be put in place starting at the village and replaced if necessary.  Systems must be created and both farmers and staff trained to use them.  Incentives must be provided.  Everyone must be motivated to respect the need for quality and treat it as a requirement which cannot be compromised.

I am proud to say that progressively, cooperatives are putting in place village level and processing plant equipment, systems and incentives that is resulting in better quality milk.  I regret however that only a few private firms have made an investment in quality at the producer level – and this must begin with and focus on the producer.  Nor have many private firms required their intermediaries to invest in quality at the farm level.  Recognising that ours is tropical country, it is only when private firms lend their weight to this effort will we, as a nation, be able to ensure quality and safety to our consumers.  May I suggest a simple way to do this?  If private players purchase their milk from cooperatives, rather than from contractors and other intermediaries, all will benefit.

Government has proposed integrating all food-related laws into a Food Safety and Standards Act.  This is an important step that has been taken. We would urge that this be introduced and passed at the earliest as it would provide for effective enforcement including greater powers for the authorities, greater accountability for enforcement and sterner penalties for violations.

Enforcement of a Food Safety and Standards Act will require that Government must establish a national system to monitor important safety and quality parameters.  It will also require analytical facilities to scientifically assess food safety and quality factors.  There will also be a need for the Food Safety and Standards Authority to coordinate with other government authorities enforcing regulations that affect quality and safety.  For example,  industrial effluent discharge and gas emissions and lead from petrol pollute air, soil and water contaminating milk and other foods through fodder, feed and water.  There is need to control the sale and use of pesticides that find their way into milk and other foods through fodder and feed.  Similarly, there need to be rules that govern the sale and use of veterinary drugs, including making it obligatory to state on the label the number of days for which milk should not be sold or consumed after the treatment is over.    All of these are essential to ensure our consumer safe, hygienic and quality milk.

Self-Regulation

While we have hope that Government will ensure the enforcement of the food law, I would like to repeat the statement that I made at the last Dairy Industry Conference and several times before that:  the only way in which we can ensure quality and safety is through industry-financed education and self-regulation.

As many of you know, in the advanced dairying nations the costs of educating the consumer are largely met by industry.  There is no reason why the responsible – and I stress the word “responsible” – members of our industry, whether cooperative or investor-owned, should not shoulder this responsibility.  It is time to stop asking Government to educate the public about the quality of milk and milk products.  It is also time for us to stop waiting for Government and to start setting and enforcing our own standards for milk and milk product safety and quality.  It is in the interest of every responsible member of our industry to commit to working together to ensure that our milk and milk products meet the highest standards and to make certain that Indian consumers know that when they buy our products, they are buying safety and quality.  We stand ready to work as a partner with all who are willing to undertake this critically important task of self-regulation.

Information and Knowledge Management

Sound information is the lifeblood of any modern industry.    For those of us in the dairy industry information needs cover a wide range:  weather conditions, type of animal buffalo or cow,  animal diseases, crop conditions and production, animal holding, milk production,  supply and demand of milk and milk products in different markets, export and import data, domestic and international prices etc.  Government has so far unfortunately failed to invest adequately in compiling national data.  Without accurate and timely data, neither commercial nor policy decisions can be reached with any degree of confidence.  Today, information available with Government is almost entirely provided by some cooperatives.  Unfortunately, each organization seems to treat information as proprietary.  As do Governments elsewhere, our Government must require all members of our industry – cooperative and private to provide the information necessary for the sound growth of dairying in India.  For good management decision making, managers need reliable timely information to decide which opportunities to pursue.  It is time that each participant in our industry begins sharing accurate information on a timely basis.

Global positioning implies that we face global competition.  Our global competitors collect and share information.  In many cases, trade bodies and governments mandate the supply of critical data by the industry.  You can go to the internet and access very detailed information on the productivity of dairy herds in different countries, or of the production of different cooperative plants in New Zealand, or read the audited financial statements of British or French dairy firms.  If we are to compete effectively we have to evolve systems where information is made available – not just selective information from a few players, but information from our entire industry.  Without this, our dairy industry can at best only be mismanaged as we rely on rumour and speculation rather than facts as the basis for decision-making.

Role of Government

I would now like to come to the important role that Government needs to play to support our country’s dairy farmers. Nearly sixty years after Independence, there are still a great many villages where drinking water, power, rural roads and other infrastructure are either lacking, or are available only intermittently.  Let me point out, on behalf of our industry, that milk is now a major contributor to our agricultural economy.  Milk is a highly perishable commodity and, depends far more on infrastructure than do cereal crops, for example.  Quality, clean water is needed both for the health of animals and to ensure the hygiene of milk procurement.  Power is needed to chill and hold milk at village level.  Good roads are needed to carry milk to processing plants as swiftly as possible.  Substantial funds have been committed by Government to watershed projects – the success of which depends ideally on community effort as the regeneration or revegetation has to be undertaken on common land.  It is long since time that the Government schemes to fund this infrastructure and development are focused in areas where dairying is concentrated and where economic returns on the investment would be maximized.

The Cooperative Structure

I would like to turn now to a subject that relates specifically to our cooperatives.  The health and well-being of our cooperatives is as important to the future of Indian dairying as it has been to its past and present. We cannot ignore the fact that Government policies and programmes wisely sheltered dairy cooperatives from domestic and global competition; but those protections no longer exist.  Today there are growing numbers of domestic and international firms which compete for milk and for consumers.  We must not forget that for much of the period when dairy cooperatives were expanding and becoming stronger, demand for milk and milk products outstripped supply:  marketing was more a logistical than a commercial challenge.   And we must bear in mind that while the expansion of dairy cooperatives has been impressive, it covers only about 18% of the villages in our country today and within these areas only a fraction of the producers have been reached with quality inputs and services.

One thing has not changed significantly over the last five decades:  the majority of dairy cooperatives continue to operate under an antiquated legal and regulatory regime that poses substantial competitive challenges.  Elected leadership can be replaced at the whim of a Government and replaced by individuals whose qualifications are political, not necessarily demonstrated competence and commitment.  Senior professionals in many states continue to be employees of Government, accountable to civil servants or politicians and not to the members and their elected Boards.  Leadership and experience and skills in areas like marketing and financial management are often lacking.  Cooperatives continue to operate within administrative boundaries rather than economic logic.

Our dairy cooperative structure is unique to India.  That structure has linked the village producer with the urban consumer.  It has been a catalyst for the extraordinary growth of India’s dairy industry, ensuring remunerative and stable producer prices, delivering services and inputs, developing and marketing a wide range of quality products.  We are proud of all that has been achieved.

While we are proud, there are a few basic facts we need to bear in mind.  First, the underlying purpose of the dairy cooperative movement has been to improve the incomes and enhance the quality of life of the women and men who produce our country’s milk.  Whatever we do must confirm and support that purpose.  Second, “support” is the operative word.  We support India’s producers.  They are the ones responsible for the miracles that have been achieved.  Third, we must take into account the significant changes in the dairy sector and our environment, whether local, regional, national or international.

Today, due to the efforts of some strong believers in cooperation, we do have alternative legislations available to cooperatives.  Dr. Kurien’s contributions to Indian dairying and our dairy cooperative movement are well known and well recorded.  Perhaps less well known is his unflagging commitment to a legal and regulatory environment that would allow cooperatives to compete with the same agility, flexibility and professional skill as enjoyed by other forms of corporate enterprise.  Beginning in the mid-1980s, Dr. Kurien began working on and advocating a law that would provide cooperatives with the same framework as the Companies Act.  By late 1999 the impact of liberalization was clearly visible in the market place  with private players almost overtaking cooperatives in a number of states.  It was then that I prevailed upon Prime Minister Vajpayee to provide cooperatives an alternative legislation under the Companies Act as exists in most developed countries.    Fortunately Government was convinced of the need for a legislation and in February, 2003 a chapter was introduced in the Companies Act which enables the setting up of Producer Companies. This legislation, the Producer Company in the Companies Act, offers an opportunity for cooperatives to enjoy the same regulatory regime as a private limited company while retaining the essential elements of cooperation which include democratic control, voluntary membership, membership restricted only to users ie., only producers, a cap on dividend, distribution of residual returns ie., profits, based on patronage.

In fact as late as 2002 when Dr Kurien learnt that the proposed Bill was being examined by the Parliamentary Standing Committee, as Chairman of the National Cooperative Dairy Federation of India he sought support for this legislation and I quote from letters he has written: “With liberalization cooperatives must face a much greater competition than before.  To survive they must not just meet social objectives, they must also compete as businesses.  I believe that the proposed legislation will allow those cooperatives that so choose, to compete against multinationals and others, thus protecting their members’ interests”.

Dr Kurien goes on to say

“You would be happy to know that the dairy cooperatives – which constitute around one fifth of the total number of cooperatives in the country and contribute to nearly two thirds of the output of agriculture and producers cooperatives in the country – strongly support the Producer Company Bill and also seek its early enactment.  There are also many other eminent  cooperators and institutions that have appreciated the initiative to enable cooperatives to function under company law.”

To say the least, I am deeply saddened.  It is unfortunate and most disappointing that NDDB’s efforts to provide cooperatives the freedom, flexibility and professionalism necessary  to give them a level playing field to compete with other dairy corporate enterprises, is now being referred to as ‘corporatization’.

Conclusion

The processes of liberalization and globalization are irreversible.  We can anticipate some changes in the competitive environment; others as yet unrecognized will occur.  We strongly believe that cooperation continues to be the right path:  it is only through cooperation that our producers can overcome their individual weaknesses and benefit, both individually and collectively, from their participation in the market economy.  But, at the same time, we believe that mere registration is not what defines a cooperative.  It is the principles of cooperation that count.  It is for this reason that we believe that a plurality of institutional structures: Producer Companies with tens of thousands of individual members; cooperatives that cover natural milksheds of economic size across two or three states; alliances with other country cooperatives and even with investor-owned companies; creation of cooperative-owned companies that are sufficiently agile, flexible and well managed to compete in the global market place need to be explored.

Today’s Indian dairy industry is a testimony to the power of an idea and the efforts of tens of thousands of committed workers and leaders and millions of our nation’s dairy producers.  As I said earlier, any road map must point to a goal.  The goal that has served us well is the goal of helping our nation’s producers to build better lives through dairying.  If we are to build on our foundation and achieve the enormous potential that dairying provides, then we must keep that purpose constant.

Because our dairying depends on millions of producers, we face substantial challenges in critical areas:  improved productivity, enhanced quality and in evolving the types of institutional structures that retain the principles of cooperation while meeting the changing needs of an increasingly complex competitive environment.

As we face the future, as an industry, I believe it is essential that we clearly delineate our responsibilities for our industry – which is our role – and the responsibility for the public good – which is Government’s.  As an industry I believe that we have a clear and compelling responsibility for setting and enforcing standards and for public education on milk and milk product safety and quality.  I believe we have an obligation to coordinate and cooperate on building and sharing an information and knowledge management system that informs policies and programmes and enables us to compete in a global market place.

Because dairying benefits so many of our nation’s citizens, I believe that Government has a responsibility to concentrate investment in infrastructure in areas where dairying has demonstrated its potential.

Our industry needs the discipline and the protection of a Food Safety and Standards Act, and we urge Government to enact such an Act without delay.

For more than two decades a draft “Prevention of Infectious and Contagious Diseases in Animals Act” has languished.  The enormous losses suffered from endemic livestock diseases, have so far failed to move Governments  to pass this legislation.  May we hope that the legislation comes into effect soon.

Let me close by reminding all here today that we are sitting in these comfortable surroundings in Bangalore because of the efforts of tens of millions of our farmers.  It is easy to believe that we have achieved a great deal through our own efforts.  And all of us have done our bit.  But the heroine of Indian dairying is the woman in villages throughout our country who has fed, cared for and milked one or two cows and buffaloes while also caring for her family.  She has achieved miracles and we owe her a debt that none of us can begin to repay.  That does not mean, however, that we should ever stop trying.  We must always keep our dairy farmer at the centre of our concerns.  Should we lose sight of this, we place our industry in jeopardy.  But, if we continue to ensure that our policies and programmes benefit our farmers, they will never disappoint us.

Thank you.