Will Dairy Be Retail Giants’ Milch Cow?

INDIA - It isn’t foodgrain alone that is undergoing fundamental structural changes in market dynamics. Also in the grip of a sea change is its subsidiary, the dairy sector. This is poised to happen 36 years after Operation Flood and even more after the era of Polsons, the company which dominated Bombay’s milk supply in the 60s through a network of contractors, who raked in moolah, leaving the farmer in the lurch.
calendar icon 21 August 2007
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The imminent structural recast of India’s dairy sector is set to significantly alter the quality of life in rural areas. It may be noted that small and resource-poor farmer, with only one or two cows grazing on crop residue, is the building block for the 75,000-odd co-operatives that form the backbone of the Rs 2,27,340-crore domestic dairy sector.

Recently, Wal-Mart and domestic retail giant Reliance signalled plans to enter the sector, in a move that, according to some, “poised Indian dairy for a giant leap forward”. It is expected that the foreign and domestic retail biggies would make huge investment. Wal-Mart and Reliance are to procure 15 lakh tonnes and 7 lakh tonnes of milk, respectively, from Indian farmers. Reliance would do this directly through its 1,000-odd direct collection network, mostly in Punjab now and likely to be expanded to Rajasthan and Andhra Pradesh soon. In July, Bharti, Coca-Cola and PepsiCo also spelt out plans to take a big swig out of the milk can. Existing players, Nestle and Amul, too, are gung ho over their own capacity expansion plans.

But will all this corporate action truly guarantee balancing of market and societal concerns in rural India? What may be crucial is whether the private sector and MNC giants use the existing co-operative model to source their milk or decide to duplicate networks in already well-structured producer regions, weakening the extensive socio-economic influence of co-ops.

In Denmark, for instance, global liberalisation forced out most co-ops over the last two decades (over 280 in the 70s, only 13 in 2004) and those that remain have corporatised. Of the top 20 giant companies in post-liberalisation dairy world today, only eight are in the co-operative sector. In India, the private sector accounts for just 9% of the market share, at par with the co-op sector. But India has mostly strengthened the existing co-operative network that helped boost the per capita milk consumption per day to 240 gm (88kg/yr), much higher than other developing countries.

Source: The Economic Times

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