Market Milk

Module 1. Introduction and history of dairy development in India

Lesson 2
DAIRY DEVELOPMENT IN INDIA – BEFORE AND AFTER OPERATION FLOOD

2.1 Introduction

History of dairy development in India can be divided into two distinct phases: pre- and post-Operation Flood. The Defence Department under the British rule established military dairy farms to ensure the supply of milk and butter to the colonial army. The first of these farms was set up in Allahabad in 1913, followed by Bangalore, Ooty and Karnal. These farms were well maintained and used improved milch animals. Some herd improvement practices such as artificial insemination was also followed.

However, this did not have much impact on the civilian consumers. With the growth of the population in urban areas, consumers had to depend on milk vendors who kept cattle in these areas and sold their milk, often door-to-door. As a result, several cattle sheds came into existence in different cities, which led to environmental problems. As the main objective of the milk vendors was to maximize profit, they started increasing the lactation period. Consequently, these high-yielding cattle developed sterility problems, which considerably reduced the number of calvings. Once the cattle became unproductive, they were sold to slaughterhouses, thus systematically draining the country of its genetically superior breeds.

The onset of the Second World War gave momentum to private dairies with some modernized processing facilities. In the metros of the then Bombay, Calcutta, Madras and Delhi, and some large towns, processed milk, table butter and ice-cream were available, though on a limited scale. Polsons, Keventers and the Express Dairy were some of the pioneer urban processing dairies. However, these dairies were more concerned with cornering more milk and profit making than improving the breeds of milch animals. Therefore, despite some modernized processing facilities, dairying remained unorganized.

Modernization of the dairy industry became a priority for the government after first Five-Year Plan in 1951 and it was put in place. The goal was to provide hygienic milk to the country's growing urban population. At the outset, ‘milk schemes’ were set up in large cities. The government implemented programmes such as the Integrated Cattle Development Project (ICDP), Key Village Scheme (KVS) and several others to stimulate milk production. However, milk production remained more or less stagnant owing to the absence of a stable and remunerative market for milk producers. During the two decades between 1951 and 1970, the annual growth rate in milk production was just about 1% although the state governments tried out different policies to develop dairying. These strategies included establishing dairies run by their own departments, setting up cattle colonies in urban areas and organizing milk schemes. Almost invariably, dairy processing plants were built in cities rather than in the milksheds where milk was produced, leading to establishment of cattle colonies in the then Bombay, Calcutta and Madras. These government projects found organizing rural milk procurement and running milk schemes economically extremely difficult. No attention was paid to create an organized system for procurement of milk, which was left to contractors and middlemen. Milk's perishable nature and relative scarcity gave the milk vendors considerable advantage.

The government-run dairy plants extended buffalo milk by reconstituting large quantities of relatively cheap, commercially imported milk powder to bring down the milk price. Consequently, the domestic milk production decreased. The government dairies were meeting barely one-third of the urban demand, while the rural milk producers squirmed in the clutches of the traders and the moneylenders. The establishment and prevalence of cattle colonies resulted in a major genetic drain on the rural milch animal population, which would never be replaced. City dairy colonies contributed to environmental degradation, while the rural producers derived no incentive in increasing milk production.

2.2 The Co-operative Movement

The strategy for organized dairy development in India was actually conceived in the late 1960s, within a few years after the establishment of National Dairy Development Board (NDDB) in 1965. NDDB was established by an Act of Parliament with the objectives of promoting dairy cooperatives, financing dairy infrastructure through loans and grants and providing technical and managerial support to the dairy cooperative societies. The Operation Flood programme (OFP) was conceived by the NDDB and endorsed by the government. However, in 1969, when the Government of India approved the OFP and its financing through the monetization of World Food Programme-gifted commodities, it was found that the statutes under which NDDB was registered did not provide for handling of government funds. Therefore, in 1970 the government established a public-sector company, the Indian Dairy Corporation (IDC). The IDC was given responsibility for receiving the project's donated commodities, testing their quality, their storage and transfer to user dairies as well as receiving the dairies' payments. Thus the financial and promotional aspects were the responsibility of the IDC while the entire technical support for OFP was provided by NDDB.

OFP was set up with the objectives to enhance milk production, increase the rural income and to ensure reasonable price to the farmers for the milk they produce. OFP was implemented in three phases. The first phase (1970-1980) was financed by the sale of 1,26,000 MT of skimmed milk powder (SMP) and 42,000 MT of butter oil gifted by the European Union (then European Economic Community – EEC) through the World Food Programme. The programme involved organizing dairy cooperatives at the village level, creating the physical and institutional infrastructure for milk procurement, processing, marketing and production enhancement services at the union level and establishing dairies in India's major metropolitan cities. The main thrust was to set up dairy cooperatives in India's best milksheds, linking them with the four main cities of Bombay, Calcutta, Delhi and Madras, in which a commanding share of the milk market was to be captured. Thus, eighteen of India's premier milksheds were linked with consumers in India's four major metropolitan cities. In achieving that goal, the first phase of Operation Flood laid the foundation for India's modern dairy industry, an industry that would ultimately meet the country's need for milk and milk products.

Operation Flood's Phase II (1981-85) integrated the Indian Dairy Association-assisted dairy development projects being implemented in some Indian states into the overall programme. About US$ 150 million was provided by the World Bank, with the balance of project financing obtained in the form of commodity assistance (2,16,584 MT of SMP, 62,402 MT of butter oil and 16,577 MT of butter) from the EEC. The milksheds increased from 18 to 136 and 290 urban markets expanded the outlets for milk. A self-sustaining system of 43,000 village cooperatives covering 4.25 million milk producers was established by the end of 1985. Domestic milk powder production in the established dairies increased from 22,000 tons in the pre-project year to 140,000 tons by 1989.

Phase III (1985-1996) of Operation Flood enabled dairy cooperatives to expand and strengthen the infrastructure required to procure and market increasing volumes of milk. It was funded by a World Bank credit of about US$ 365 million and Rs. 226.5 crore worth of food aid (75,000 MT of SMP and 25,000 MT of butter oil/butter) from the EEC. Veterinary first-aid health care services, feed and artificial insemination services for cooperative members were extended, along with intensified member education. More emphasis was given to research and development in animal health and animal nutrition. To avoid any duplication in their activities or overlap of functions, IDC and NDDB were eventually merged into a newly constituted NDDB by an Act of Parliament passed in October, 1987. The Act designated the NDDB as an institution of national importance and accorded it the same autonomy of operation that it had been bestowed with earlier.

India currently has 133349 village dairy cooperatives federated into 177 milk unions and 15 federations that procured on an average 25.1 million litres of milk every day. These village dairy cooperatives have nearly 13.9 million farmers as members (www.nddb.org, 2008-09 figures). These cooperatives form part of the National Milk Grid which today links the milk producers in villages throughout India with consumers in over 700 towns and cities bridging the gap between the seasonal and regional variation in the availability of milk while at the same time ensuring a remunerative returns to the producers and quality milk and milk products at a reasonable price to the consumers. The future thrust areas of NDDB include strengthening the cooperative business, enhancing productivity, improving quality and building a National Information Network.

Selected Readings

Cunningham, K.J. 2009. Rural and urban linkages: Operation flood’s role in India’s dairy development. 37 pages. International Food Policy Research Institute (IFPRI) Discussion Paper 00924.
Kainth, G.S. 1998. India’s Rural Co-operatives. Daya Books, New Delhi.

www.nddb.org/aboutnddb/operationflood.html