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Describe what is the expected role of COMPFED as a cooperative in Bihar and the main problem(challenge) facing the cooperative. DO SOLVE THE PROBLEM.

COMPFED: THE DAIRY COOPERATIVE DISTRIBUTION SYSTEM

One morning in April 2009, Rajeev Verma, the marketing manager of the Bihar State Milk Cooperative Federation (COMPFED), Patna, India, was studying the milk procurement status and financial statements of the company. He realized that milk procurement had gone down drastically over the last two years, which had caused an adverse impact on the overall profit of the state federation (see Exhibits 1 and 2).

Verma wanted to meet his team in order to discuss a variety of issues including milk procurement over the last two years, decline in milk supply, diminishing margins, rising penetration of middlemen and nonstate private players and the shift in consumer demand with respect to nutrition and health. COMPFED had incurred losses from the financial years 2007 to 2009. Local private players (e.g. Raj Fresh), multinational corporations (MNCs, such as Nestle and Unilever), COMPFED's sister-federation's brand, Amul^[1] and resellers (or "middlemen") were all looking to gain a share in the profitable urban market; farmers had been steadily migrating to these agencies in order to get a better price for their milk. Consequently, the district-level cooperatives (unions) that had been formed primarily to process and preserve milk collected from village cooperatives for the state level cooperative (namely COMPFED) were unable to get adequate milk for processing and manufacturing milk products. As a result, the organization's processing capacity remained unutilized, negatively affecting overall profitability.

At the same time, alternative milk and milk products such as Amul Taaza Milk, Reliance Fresh milk, etc. were becoming widely available. Retailers selling COMPFED milk faced a tremendous challenge trying to cater to consumer demands and maintain profitability. The government invested Rs5 billion (US$110 million)² in the financial year 2009-2010 to fulfill its commitment towards the mission of uplifting rural people through cooperative movement in the state of Bihar. In a meeting, Verma noted:

Severe floods and their after-effects in different parts of the state have caused huge damage to cattle resources in the last two years. Diseases among cattle, caused by stagnant floodwater, have resulted in a fall in the production of milk. At the same time, middlemen, who generally operate in small pockets of the state during festivals and marriage season, tempt farmers by offering higher prices than those offered by cooperatives.

COMPFED had been marketing milk and nearly 20 different kinds of milk-related products under the brand name "Sudha" for over 30 years, mainly in the states of Bihar and Jharkhand. It had six district unions and two dairies to process the milk collected from nearly 4,000 active village-level cooperatives^[2] and to produce milk-related produce (see Exhibit 3). Its network for procuring milk included far-flung areas of the state, many of them inaccessible to the other players in the market.

As a state federation, COMPFED had several responsibilities towards its stakeholders (unions, village cooperatives, farmers, consumers, retailers, government and employees). It had to ensure that the unions obtained adequate milk from village-level cooperatives for processing and manufacturing milk products. It was also imperative that village-level cooperatives had all the facilities (space, milk-testing machines, doctors, cattle feed, insemination injections, etc.) required to provide prompt service to farmers. Farmers expected to get a competitive price for their milk and milk products. Consumers wanted better-quality products. Retailers wanted to get adequate milk to serve the increasing demand and to maintain profitability. Employees wanted to remain proud of being associated with the cooperative for their livelihood. The government wanted to ensure that COMPFED was executing its task of uplifting rural parts of the state through the cooperative movement.

The current situation made Verma realize that COMPFED faced two major challenges. The first involved retaining farmers as members of the federation. Private companies and middlemen had offered a higher price than the state federation for milk and milk products supplied by farmers; for the farmers, it obviously appeared that these organizations offered a better deal for their produce. Consequently, this combination of private players and middlemen had begun to threaten the whole cooperative system. Verma knew existing members of the village cooperatives (i.e., farmers who continued to supply COMPFED with milk) would shield against the private players and middlemen, but it would not be very effective in the long run.

The second major challenge COMPFED faced involved attracting new farmers whose expectations would match the mission of the cooperatives to ensure long-term sustainability. Many existing farmers still did not seem to know what the cooperatives offered: cooperatives were still known primarily as milk collection centres but in fact, they provided many unique services at affordable rates. As Verma noted, "The challenge is to convince farmers that association with the cooperatives will give them long-term benefits, such as a better price in the years to come."

THE DAIRY INDUSTRY IN INDIA

India was the largest milk-producing country in the world, with 15 per cent of total global production of milk and milk-related products (see Exhibit 4). Although India was far behind the United States in the production of either whole (or fresh) cows' milk, it had surpassed the United States in March, 1999 in terms of total production (including buffalo milk).⁴ Moreover, it was expected that India would be producing 180 million tonnes of milk annually by 2021.⁵ Within the country, milk production was the second-largest agricultural commodity after rice in terms of total production but it was the largest in terms of its output value (see Exhibit 5). Milk was one of India's most important rural industries and contributed 31.7 per cent to the overall farm GDP. At the same time, the milk industry directly accounted for 13 million jobs, mostly in rural areas, where nearly 70 per cent of the total Indian population dwelt.

Role of Cooperatives

At the beginning of the Indian cooperative movement, in the 1960s, farmers involved in dairy farming had only a limited number of cattle. As a result, their production of milk was very low. Additionally, because milk was a perishable product, it was impossible to sell it in places that were very far from the village it originated from since the storage and transportation of raw milk required refrigerated containers. Simultaneously, selling the entire quantity of milk produced within the village it came from was not a viable option since there was very little demand for it. Consequently, the only option these farmers had was to sell milk to middlemen at a very low price; these middlemen accumulated the milk from several villages and transported it to nearby towns and cities. Against this backdrop, milk unions intervened and formed cooperatives where village farmers became shareholders and could sell their milk directly to the cooperative.

While these cooperatives offered farmers a preferable alternative to relying on middlemen, initial difficulties facing these cooperatives included sustaining and increasing their profitability. Firstly, these farmers did not have formal education: they lacked marketing knowledge and were consequently unable to sell their milk in upstate markets. The farmers also lacked the aggressive attitude necessary to oppose local private players and middlemen. In the initial stages, therefore, cooperatives struggled but slowly gained stability; however, middlemen continued to operate and influence villagers to sell milk directly to them, particularly when the demand for milk reached its peak during festival time.

Cooperatives played the role of a catalyst in the overall development of the Indian dairy industry by facilitating the production, collection, procurement, processing and marketing of milk. In the beginning, the so-called Anand pattern⁶ was a two-tier system. The village-level cooperatives, generally known as milk collection centres, were involved in the procurement and collection of milk from farmers. Unions looked after the processing of milk, provided technical input to improve the milk yield of animals and also helped in the marketing of milk and milk products.

After 1974, the three-tier cooperative system began to operate on a two-tier structure. At the grass-roots level, farmers became members of village cooperatives by paying a nominal membership fee. In return, village cooperatives purchased milk from the farmers at market price and sent it to the district-level union cooperatives to be processed. After district-level union cooperatives had processed the milk, they transported the processed milk to state-level cooperatives, also known as state federations. The final task of marketing the product was the responsibility of the apex body that is, the state-level milk federation cooperative.

In 2008, cooperatives represented more than 13 million dairy farmers belonging to about 122,000 primary (village) cooperative societies. These village-level cooperatives sold their milk products to one of 198 milk producers' cooperative unions operating at districts level. District-level unions were, in turn, ultimately supported by 21 state-level cooperative milk-marketing federations (see Exhibit 6).

1. Statistics used from Food and Agriculture Organization of the United Nations, http://faostat.fao.org/site/603/default.aspx#ancor, accessed February 9, 2009.
2. "Milk output to grow 3.9%, says dairy board," The Financial Express, May 15, 2010,www.financialexpress.com/news/milkoutput-to-grow-3.9-says-dairy-board/619009/0, accessed January 9, 2012.
3. Anand, a district in the state of Gujarat, was the first district in India to adopt this three-tier model in order to initiate the cooperative movement in milk collection, processing and marketing.

National Dairy Development Board

After the success of the cooperative movement in milk collection, processing and marketing in Anand, it was believed that the same cooperative model could be replicated in other states in India. To this end, the National Dairy Development Board (NDDB) was established as a non-profit organization in 1965, to promote, finance and support milk production, procurement, processing and marketing through cooperative societies all over the country. NDDB launched three "Operation Flood" movements in India to promote milk production, which resulted in a substantial increase in milk production, generated employment and increased the per-capita availability of milk, foreign exchange savings and farmer incomes.^[3] Moreover, various Operation Flood campaigns were instrumental in helping rural farmers direct their own development, placing control of the resources they had created in their own hands. The World Bank Report (1997) noted, "Operation Flood can be viewed as a 20-year experiment confirming the rural development vision."^[4] Farmers became more self-reliant and realized that they would be getting a competitive price for their milk produce from cooperatives; consequently, middlemen would not be able to exploit them by offering a lower price than the cooperatives.

Over the years, NDDB was designated as a profit-making organization (though it was financially supported by the national government) and evolved into an apex body to manage cooperative societies across the country; the organization was not, however, meant to be a regulatory body since it was not mandatory that cooperatives follow its guidelines. Moreover, during its inception years, NDDB had provided only guidelines and financial support to the dairy cooperatives to operate efficiently. NDDB started developing products and manufacturing processes, strengthening the procurement system, enhancing women's involvement in cooperatives, building institutions, facilitating research and development in bio-technology, providing training and consultancy and offering many more allied services to the cooperative societies. It had a small number of subsidiaries to promote commodities-based cooperatives and veterinary/biological services, respectively, on an intensive and nation-wide basis. Eventually, NDDB began charging for the services it provided to cooperatives at village, district and state levels. In this context, Verma stated that "NDDB supported COMPFED in the establishment of its dairy plants by providing technical input in its initial years. Even today, depending on our requirements for specialized services, NDDB comes forward to support us; however, the support from NDDB and similar agencies costs us money.

COMPFED: A SNAPSHOT

COMPFED was founded as a state-level federation in 1983. It was the outcome of phase two of the Operation Flood program, which was initiated by NDDB all over the country during 1981-1985. In 2009, there were six district-level milk producers' cooperative unions affiliated with COMPFED. They covered 22 districts. Four districts were directly linked to the state federation in Bihar. These were the districts of Jharkhand state that were directly managed by COMPFED regarding the supply of milk and milk products to the urban consumers in those districts; the procured milk was taken to Ranchi (the capital of Jharkhand) for processing and manufacturing milk produce.^[5] Although COMPFED catered to the needs of several diverse markets in Bihar and Jharkhand, competition from MNCs and local private players remained in all major profitable markets: farmers were tempted by private companies' offers of higher prices for their milk produce.

Processing Infrastructure

There were eight milk-processing plants associated with COMPFED. COMPFED had a total handling and processing capacity of 830,000 litres per day (219,262 gallons per day) (see Exhibit 4). It also had access to eight milk-chilling centres and 10 bulk coolers, which provided an additional chilling capacity of 240,000 litres per day (63,929 gallons per day). It had one ice-cream-manufacturing unit with a capacity of 3,000 litres per day (792 gallons per day), which catered to the markets of two states, Bihar and Jharkhand. It had one milk-powder plant currently functioning and another that had been proposed with the objective of conserving surplus milk solids. COMPFED also had three cattle-feed plants to meet the feed demands of the dairy cooperative societies. It was the responsibility of village-level cooperatives to provide cattle feed to its members at competitive rates. As part of its plan to expand its infrastructure and cater to the seasonal demand for milk, COMPFED planned to launch a tetra pak milk ^[6]manufacturing unit in Nalanda by the end of 2009, as Verma described: "The launch of tetra pak will increase the shelf life of our milk to 90 days and therefore help to meet the demand for milk in all seasons a demand that is usually catered to by private players or middlemen."

Marketing of Milk and Milk Products: Sudha Brand

The prime motive for establishing COMPFED was to add value to the milk and milk-related products of village- and union-level cooperatives in order to gain profit for the milk producers. Although the federation's initial years were devoted to organizing dairy cooperative societies and educating farmers, by 1993, the group's primary goal had shifted to marketing the product to ensure sufficient profits for stakeholders. To reinforce this idea, 2001 was declared a "market development year" by COMPFED.

Unions and dairies associated with COMPFED used 40 per cent of procured milk for producing packaged milk, and the remainder for manufacturing milk-related products. COMPFED had been marketing five variety of packaged milk (see Exhibit 7) and several kinds of milk-related products under its brand name, Sudha (see Exhibit 8). Depending on their expertise, unions and dairies processed and produced different kinds of packaged milk and milk products; in addition to these products, surplus milk was conserved in the form of white butter, skim milk powder (SMP) and whole milk powder (WMP), which were mainly used by COMPFED's own dairy plants. Verma proudly stated: "The Sudha brand has achieved a significant reputation among consumers: it stands for quality and trust. In recent years, Sudha has broadened its product range to serve a larger section of the population and improve on milk products procured by village-level cooperatives."

In 2008, COMPFED launched Sudha herbal ice cream for a niche market in Bihar, and planned to launch more specialty products in the near future, as Verma revealed: "We plan to launch some probiotic^[7] items such as probiotic lassi and dahi. Probiotic products, as the name suggests, will have a very high nutrition value and be easily digestible. They will be beneficial for those looking to enjoy organic foods.

COMPFED had been reaching consumers through its own 5,732 franchised retail outlets and distributors in Bihar and Jharkhand. Similarly, private competitors had their own retail outlets and distributors. However, in rural areas, the only access consumers had to packaged milk of any kind was through unofficial traveling vendors (see Exhibit 9). Due to insufficient demand, it was not feasible to set up official retail outlets in these areas; accordingly, private players targeted urban markets where the milk market promised more profitability. COMPFED, however, had to abide by state government directives to develop the well-being of the communities where they were procuring milk. Accordingly, COMPFED organized regular improvement programs in rural areas, including educating communities about the benefits of consuming pasteurized milk. At the same time, COMPFED maintained its presence in a few cities in the neighbouring states namely West Bengal and Uttar Pradesh. The organization mainly advertised its products through billboards, pamphlets, daily newspapers, etc. in both urban and rural markets (see Exhibit 10).

Pricing

Sufficient autonomy was given at all levels of the cooperative system i.e., village-level cooperatives, unions and state federations. The pricing of farmers' milk was decided entirely by the village cooperative, and therefore might differ from one village to the next. Similarly, each union decided on prices paid to its respective village cooperatives; however, the price of procured milk, decided on by the state-level marketing federation, remained the same for all unions (see Exhibit 11). Moreover, state federations could market their own brands at the national level and compete against their sister federations from different states; for example, the Amul milk brand, promoted by the Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF), competed against many state level brands in neighbouring states, including Vijaya, which was promoted by the Andhra Pradesh Cooperatives Milk Producers' Federation Ltd., and Sudha, which was marketed byCOMPFED.

The village-level cooperatives tested the milk for its fat content and quantity and paid remuneration to the farmers. In addition, the farmers benefitted from any bonuses earned by the village cooperatives and unions; bonuses were generally distributed either quarterly or annually and comprised five per cent of the total earnings of a union. Apart from the amount paid towards the cost of milk, COMPFED provided several services to milk producers in order to improve total milk production. These unique services had a direct impact on milk procurement at a grass-roots level and were benefits that middlemen and other private players did not provide; furthermore, COMPFED estimated that five per cent of total profits from milk sales were "returned" to farmers in the form of these services.

COMPFED'S UNIQUE SERVICES

Over the years, COMPFED had worked hard to maintain its roots as a farmer-based organization. It had taken several steps to increase the number of dairy cooperative societies and their membership, and had consistently made an effort to enhance milk procurement at village cooperatives by providing several services to cattle farmers and their communities. All of the programs were generally supported by NDDB.

Artificial Insemination

Around 80 per cent of the active village-level cooperatives were covered under COMPFED's artificial insemination (AI) program. COMPFED organized 1,070 centres during 2006-07 to provide AI to develop high-pedigree buffalo, Holstein Friesen cows and crossbred bulls. A total number of 700,000 AIs were performed, which boosted the overall quality and productivity of farmers' cattle. In addition, this program promoted education and awareness among farmers and provided an opportunity for rural youth to seek self-employment.

Animal Health Program

The main activities under COMPFED's animal health program included prophylactic vaccination (against foot-and-mouth disease, hemorrhage septicemia, black quarter and theileriosis diseases), deworming and mastitis control initiatives. The program also organized veterinary/infertility camps at several villagelevel cooperatives; many of these cooperatives also had first-aid centres, which provided subsidized medicines. This program was projected to immunize up to 38,100,000 animals against diseases.

Cattle feed

COMPFED had three cattle-feed plants in order to meet the demand for nutritious fodder from the dairy cooperative societies. A cattle-feed plant located at Ranchi produced a variety of feeds for cattle, pigs, fish, etc. and sold cattle feed to farmers via village-level cooperatives. Cattle-feed sales were also a source of profit for separate village-level cooperatives and the feed could be distributed to the members of a village level cooperative at a cheaper price than the market one. Use of cattle feed increased overall milk yield in the state.

Socio-Economic Activities

The dairy cooperatives played a crucial role in empowering women through legal literacy and women'sempowerment programs. More than 100 village cooperatives were run by women only. The president, secretary and all members of the village cooperatives managed day-to-day operations and represented them to the union-level cooperatives. COMPFED frequently organized family-planning and rural health programs covering child immunization. In addition, rural sanitation programs had been initiated with the assistance of the non-profit organization, UNICEF, in the villages where cooperatives existed.

Training & Development

COMPFED organized several training and manpower development programs to build and upgrade the skill of milk producers. The COMPFED training centre was in Patna and conducted training for management committee members of village and union level cooperatives on a regular basis. Special attention was paid to providing training and education to the women of the society since women typically maintain and milk the cattle. Refresher courses and tailor made programs were delivered by the training centre of COMPFED.

MILK PRODUCERS

More than 50 per cent of milk in India was from buffaloes; the remainder was produced by cows, goats and camels. Maintaining cattle had been a rural activity for hundreds of years. Farmers kept cattle to facilitate their main agricultural activities (growing crops) and as a source of supplementary income. In 2008, it was an important source of employment, employing 10 per cent of the nation's total labour force.

Small/marginal farmers with less than 20,000 square metres of land (including landless farmers) accounted for more than 75 per cent of the 13 million rural milk producers who owned 60 per cent of

India's cattle.^[8]

Milk producers were paid for the quantity and quality of their milk; quality was primarily based on fat content, which was measured electronically or manually when the farmers brought their milk to the collection centres of a village-cooperative each morning and evening. Farmers maintained a passbook in which quantity and fat content of their milk was recorded and a remunerative price was paid to them once a month by the village cooperative. In addition, four times a year, they received a bonus from the union with which their village cooperative was associated. These bonuses were intended to supplement the farmers' regular income and prevent them from selling their milk to middlemen, who were usually ready to offer (initially) large sums of money when farmers were most in need. Unfortunately, unions sometimes failed to provide bonuses on time, which negatively affected farmers' faith in cooperatives.

CONSUMPTION

The per capita consumption of milk in India was approximately 258 grams per day in 2008-2009 relatively lower than the world average of 400 grams per day but much higher than the average for many developing countries in the Asia-Pacific region. By 2011, when India's population was expected to reach 1.18 billion, per capita consumption of milk was expected to be 280 grams per day. Within the country, there was great variety: citizens in the state of Punjab consumed, on average, 957 grams of milk per day, which was nearly six times higher than Bihar's average of 172 grams per day. However, the growth rate of per capita milk consumption in Bihar between 2004 and 2009 was immense compared to the per capita milk consumption of other states, where there had been only marginal increases (see Exhibit 12).

The majority of rural consumers in India spent more than 50 per cent of their income on food items, whereas among urban consumers, the same figure declined to 45 per cent by June 2005. Of the population's total expenditure on food items, milk and milk-related products accounted for more than 15 per cent. Though there had been a consistent increase in the consumption of milk and milk-related products in both rural and urban areas, the proportion of money spent on food items compared to money spent on milk products had remained stagnant since 2002 (see Exhibit 13).

COMPFED officials determined that the recent increase in the consumption of packaged milk and milk products in Bihar was likely the result of two significant factors: greater awareness of the health benefits of drinking milk and an increasing disposable income among middle- and low-income demographics. In addition, a growing awareness of hygiene standards and concerns about the quality of unprocessed (i.e., "loose") milk led many consumers in urban areas to switch to pasteurized packaged milk, including Sudha products, as one consumer explained: "Loose milk is not hygienic. It does not smell as fresh as packaged milk, which mars its overall taste and quality. Even among competing brands of packaged milk and milk-related products, Sudha products are affordable and better in terms of quality." In contrast, rural consumers in Bihar perceived packaged milk quite differently. One rural consumer shared his experience:

Purchasing milk directly from farmers gives assurance of its quality and purity. Packaged milk does not remain fresh and pure when it is distributed in rural areas and loose milk is cheaper than packaged milk. I do like to purchase the packaged milk occasionally, specifically during festivals and marriage season. I purchase other products from the same dairy for example, sweets, curds and ghee and these products are better than those of competitors.

GOVERNANCE AT DIFFERENT LEVELS OF COOPERATIVES

In the village-level cooperatives, members of the same cooperative elected a managing committee, which, in turn, elected a chairman annually. The managing committee also appointed a paid secretary who supervised the functioning of the cooperative. Each village-level cooperative was required to hold an annual general meeting (AGM) and issue reports according to the cooperative laws laid down by the state government. The objective behind this exercise was to keep milk producers informed of the day-to-day events of the cooperative. In this context: Verma noted that:

There are many people who file their nominations in the village-level president election. We are really facing a challenge in retaining those people in the cooperative who fail to become president. When they do not succeed in the elections, many of them become agents for private players instead, which disrupts the milk procurement efforts of cooperatives.

District-level cooperatives, such as Baurani Dairy Union (see Exhibit 14), elected a board of directors from among the chairmen of village-level cooperative societies. This board elected a chairman and vicechairman. It also appointed a managing director who ran day-to-day operations with a team made up of a procurement manager, marketing manager and an accounts officer. The position of managing director was roughly equivalent to that of chief executive officer in a business entity. The chairman generally served a one-year term and other board members served three-year terms. The unions also held annual general meetings and issued an annual report. At the AGM of a union-level cooperative, either the chairman or secretaries of village-level cooperatives were allowed to put forth ideas. On occasions when a union failed to organize a necessary AGM, the whole cooperative system could be negatively affected (see Exhibit 15).

At the state level, federations such as COMPFED elected a board of directors from among the chairmen of the union-level cooperative societies. This board elected a chairman and vice-chairman. The board's managing director was nominated by a state government representative (i.e., an Indian administrative service officer). Other officials, such as the marketing manager, procurement manager and accounts officer, were recruited though a formal selection process. The state federation also held an AGM, which could be attended by either the chairman or vice-chairman of each union-level cooperative (see Exhibit 16).

ROLE OF THE GOVERNMENT

The state government was a major shareholder in COMPFED (see Exhibit 17) and was instrumental in establishing dairy plants for the organization. The government adopted policies that were favourable for the dairy industry and also coordinated several programs to enhance the procurement of milk. Apart from offering tax breaks to farming regions, the state government supported projects that could provide economic benefits to these areas as well. Since COMPFED's project stimulated the rural farm economy, it received funding of Rs5 billion (US$110 million) from the government. Verma said:

The Government is a major stakeholder in COMPFED along with the farmers. We owe all our dairy plants and processing units to the government and we have also been getting a lot of support in terms of financing cattle wealth in collaboration with commercial banks. In addition, the government supports our insemination program, the cattle-feed plants and other similar programs. In these ways, the state government has provided us with a variety of support systems time and again.

Once the state government began promoting COMPFED, the possibility of certain groups or politicians politicizing or otherwise controlling cooperatives became a major concern. In the state of Andhra Pradesh, for example, many village-level cooperatives were allegedly encouraged by the government to sell milk to a private player named Heritage during its launch. The ruling government could also nominate a managing director who would favour the interests of the government rather than those of the cooperatives. According to Verma, however, this was thankfully something that had not occurred in Bihar: "COMPFED is very thankful that there has been almost negligible political interference, unlike in other states. Here, we operate in an almost trouble-free situation irrespective of who is in power."

VERMA'S DILEMMA

Verma knew that the state federation had a large network that was capable of procuring milk from rural areas of India that were virtually inaccessible to other players in the market. However, he wanted to adjust the procurement process in a way that would provide COMPFED and its shareholders with a sustainable competitive advantage. Verma noted:

As a perishable product, milk has to reach the dairy plant within an hour or so. It requires huge infrastructure, such as chilling centres to keep the milk fresh. With the help of the state government, we are setting up the required infrastructure to strengthen the existing network, which will result in an increase in milk procurement over the next couple of years.

Verma continued to contemplate possible strategies to enhance the procurement of milk at village level cooperatives. He proposed several steps to mitigate the aggressive roles of private players and middlemen in the market. Most of these efforts were concerned with making improvements in procuring milk in order to lower the cost of production, which would result in a better deal for farmers. Verma emphasized the fact that, above all, it was necessary to rejuvenate the farmers' interest in becoming part of the cooperative movement through awareness campaigns; he wondered if this could be achieved simply by providing a better price for milk than the private players offered. He also considered offering uninterrupted services exclusively for farmers who were members of a cooperative society.

As he prepared for a meeting with the managing director of COMPFED, Verma wondered: "What changes did COMPFED need to make in order to attract and retain farmers as suppliers? What would be the long-term consequences of these changes for the organization?"

Exhibit 1

AVERAGE MILK PROCUREMENT BY COMPFED: 2004 TO 2009 ('000 kilograms per day)

Months						% growth over last year
	2004-2005	2005-2006	2006-2007	2007-2008	2008-2009
April	449.74	493.24	556.51	549.75	468.65	-14.75
May	363.55	414.61	521.42	539.84	457.36	-15.28
June	371.08	404.47	533.91	556.48	482.07	-13.37
July	432.70	479.66	563.25	607.66	442.09	-27.25
August	479.11	544.80	563.21	469.08	364.73	-22.24
September	517.60	597.96	634.24	445.97	292.89	-34.33
October	513.01	607.86	614.24	367.26	275.92	-24.87
November	492.99	613.59	695.01	371.78	296.48	-20.25
December	567.74	660.03	687.91	410.53	375.53	-8.53
January	524.15	602.77	602.92	396.65	417.26	5.20
February	585.68	673.93	696.33	528.68	552.21	4.45
March	571.20	609.49	639.71	524.23	NA	NA
Yearly Av.	488.9	557.9	608.4	480.39	401.15	-26.83

Source: Adapted from COMPFED statistics.

Exhibit 2

AVERAGE MILK PROCUREMENT BY COMPFED FROM DISTRICT UNIONS: 2004 TO 2009

('000 kilograms per day)

Unions/dairy
	2004-2005	2005-2006	2006-2007	2007-2008	2008-2009
VP milk union	131.5	147.4	157.3	127.8	89.6
DR milk union	156.2	162.8	173.6	136.9	114.8
Vikramsheela milk union	4.4	5.6	7.7	10.5	18.2
Mithila milk union	67.3	77.7	87.1	53.6	44.7
Tirhut milk union	78.8	106.2	129.8	106	101.5
Gaya dairy	6	5.4	2.4	2.5	2.1
Ranchi dairy	5.9	5.5	4.7	3.6	3.0
Rohtas/Sahabad union	38	47	45.4	38.2	27.1
Yearly Av.	488.9	557.9	608.4	480.39	401.15

Source: Adapted from COMPFED statistics.

Exhibit 3

MILK UNIONS AND DAIRIES UNDER COMPFED AS ON MARCH 31, 2009

Unions/Dairy	No of village level co-operatives	Members ('000)	Installed capacity (TLPD)	Capacity utilization (%)
VP milk union	1826	94.22	160	77
DR milk union	1226	74.78	150	99
Mithila milk union	962	70.05	100	108
Tirhut milk union	1500	67.06	100	73
Shahabad milk union	1135	44.67	60	24
Vikramsheela milk union	240	9.60	25	65
Gaya dairy	394	12.18	20	102
Ranchi dairy	50	1.15	60	119

Source: Adapted from COMPFED statistics.

Exhibit 4

WORLD TOP FIVE COUNTRIES IN MILK AND MILK PRODUCT: 2006.

Rank	Country	Production (million tonnes)	Export	Import
1	India	99.9	0.3	0.1
2	USA	82.5	2.8	1.8
3	China	37.5	0.3	2.1
4	Russian Federation	31.3	0.2	2.8
5	Pakistan	31.2	NA	0.1
	World Total	664.1	39.4	39.3

Source: Adapted from FAO Food Outlook, June 2008, http://faostat.fao.org/site/603/default.aspx#ancor, accessed February 9, 2009.

Exhibit 5

TOP FIVE AGRICULTURAL COMMODITIES PRODUCED IN INDIA: 2005.

Rank	Commodity	Production (million tonnes)	Output value ($'000)
1	Rice	129	27,478,290
2	Wheat	72	11,230,560
3	Buffalo milk	50.7	25,344,630
4	Cow milk, whole, fresh	38.5	10,238,690
5	Vegetables freshness	35	6,567,750

Source: Food and Agriculture Organization of the United Nations, http://faostat.fao.org/site/603/default.aspx#ancor, accessed February 9, 2009.

Exhibit 6

THE ANAND PATTERN

State marketing federations

21 state federations in India

District milk-processing unions

198 unions across India

Village-level cooperative societies

128,799 village-level societies in India

Milk producers

13.4 million Farmers

Source: NDD, www.nddb.org/aboutnddb/genesis.html, accessed March 20, 2009.

Exhibit 7

TYPE OF MILK BEING MARKETED THROUGH DIFFERENT COMPFED DAIRIES AND ITS MRP as on March 31, 2009 in rupees per litre

S N	Brand name (Type of milk with % of fat content)	VPMU	DRMU	MMU	TMU	SMU	JSR	RAN	BAK	GAYA
1	Sudha gold (Full cream milk, 6.04%)	24.00	24.00		24.00	24.00
2	Sudha shakti (Standard milk, 4.50%)	22.00	22.00	22.00	22.00	22.00	23.00	23.00	23.00	22.00
3	Sudha healthy (Tonned milk, 3.40%)	20.00	20.00	20.00	20.00	20.00	21.00	21.00	21.00	21.00
4	Sudha smart (Double-tonned milk, fatless)	18.00			18.00			20.00	20.00
5	Cow milk (3.00%)	22.00	22.00

Note: Tonned = reduced fat.

For satellite markets, the MRP will typically be higher by Re 1 per litre in order to meet the transportation and distribution expenses incurred for such markets. These areas cannot be covered by the main route.

Half-litre price to be rounded off to next rupee.

New MRP to be printed or embossed on polypacks and widely displayed at all retail sale points and through newspapers. The variety of milk to be marketed by each union/unit, for which new maximum retail price was fixed on March 25, 2009, is recommended by the concerned union/unit head.

Source: Adapted from COMPFED statistics.

Exhibit 8

MAIN PRODUCTS

	Main products
1	Sudha Peda
2	Sudha Lassi
3	Sudha Kalakand
4	Sudha Gulabjamun
5	Sudha Rasogulla
6	Sudha Khoa
7	Sudha Dahi
8	Sudha Icecream
9	Sudha Ghee
10	Sudha Butter
11	Sudha Milk Shake
12	Sudha Mattha
13	Sudha Koha Mithial
14	Sudha Surabhi

Source: Adapted from COMPFED document.

Exhibit 9

TYPICAL DISTRIBUTION CHANNEL

1. Cooperatives channels:
   1. Urban farmers>Village cooperatives> Unions> Distributors> Retailers>Consumers
   2. Rural farmers> Village cooperatives> Unions> Distributors> Retailers>Unofficial vendors>Consumers.

1. Private players:
   1. Farmers>Small agents>Contractors>Private dairies>Distributors> Retailers>Consumers.

Source: Case authors.

Exhibit 10

BILLBOARD ADVERTISING SUDHA MILK AND MILK PRODUCTS

Source: COMPFED document.

Exhibit 11

PRICE BREAKDOWN FOR 1 LITRE OF MILK WITH 4 PER CENT FAT CONTENT as on March 31, 2009

Expenses incurred for 1 litre of milk at different level of marketing channels	Rs
Expenses incurred by a farmer	13.00
Net price received at a village milk collection centre by a farmer	16.24
Expenses of a village-level cooperative	1.16
Union-level purchase price	17.40
Union-level expenses	1.60
COMPFED-level expenses	1.00
Distributor's purchase price	20.00
Distributor's margin	1.20
Retailer's purchase price	21.20
Retailer's margin	.80
Consumer's purchase price	22.00
Consumer's purchase price in a satellite area	23.00

Source: Adopted from COMPFED statistics, Interview with the farmers, designees at village, union and state level cooperatives, distributors, retailers and consumers and anecdotal evidences.

Exhibit 12

PER CAPITA AVAILABILITY OF MILK BY STATES grams per day

Rank	States	2004-2005	2005-2006	2006-2007	2007-2008	2008-2009
1	Punjab	917	943	961	962	957
2	Haryana	631	628	633	632	645
3	Rajasthan	376	387	408	408	399
4	Himachal Pradesh	337	378	373	367	365
17	Bihar	147	154	163	170	172
Total	All states in India	233	241	246	252	258

Source: Department of Animal Husbandry, Dairying & Fisheries, Ministry of Agriculture, Government of India.

www.nddb.org/statistics/milkprod_states_capita3.html, accessed March 20, 2009.

Exhibit 13

PER CAPITA AVERAGE MONTHLY CONSUMPTION EXPENDITURE ON BROAD ITEMS:

2001 TO 2005 (IN RS)

NSS Round	Milk & Milk Products	Meat Egg and Fish	Total Food items	Non-food Items	Total Expenditure	Average Size of House Hold
57th (July 2001-June 2002)
Rural	41.91	16.72	276.35	221.92	498.27	5.02
Urban	75.82	25.83	402.31	530.48	932.79	4.48
58th (July 2002-Dec 2002)
Rural	45.34	18.31	292.27	239.21	531.49	5.00
Urban	78.19	27.07	429.79	582.18	1011.97	4.40
59th (Jan 2003-Dec 2003)
Rural	44.69	17.93	299.86	255.68	555.55	5.00
Urban	80.03	27.18	429.12	593.56	1022.68	4.50
60th (Jan 2004-June 2004)
Rural	47.60	18.60	304.60	260.10	564.70	5.08
Urban	82.98	27.84	441.48	618.68	1060.16	4.42
61st (July 2004-June 2005)
Rural	47.31	18.60	307.60	251.19	558.78	5.08
Urban	83.30	28.47	447.41	604.95	1052.36	4.55

Source: Level & Pattern of Consumer Expenditure, Various Issues, National Sample Survey Organisation, Ministry of Statistics & Programme Implementation, Government of India, www.nddb.org/statistics/expenditure_milk.html, accessed March 20, 2009.

Exhibit 14

BACKGROUND OF BAURANI DAIRY: UNION LEVEL COOPERATIVE

Deshratna Dr. Rajendera Prasad Milk Producers' Union Limited (DRMU), Barauni, commonly referred to as Barauni Dairy, was the largest milk union in the eastern part of India an industrially-deprived region with a handling capacity of 3.0 lacs litres per day along with a powder plant capacity 13.0MT. It was on the 6th May of 1992 that Barauni Dairy was handed over to the management of milk union by Bihar State Cooperative Milk Producers' Federation Limited (COMPFED).

DRMU operated in the vicinity of Begusarai, Khagaria, Lakhisarai and part of Patna with its 223 affiliated village level co-operatives. It had a range of milk and milk related products under the brand name of Sudha. For example, Sudha Rassogulla, Gulab Jamun, Kalakand, Milk cake, Misthi dahi, sweetened condensed milk product called Sudha special, Sudha Paneer. Sudha had been synonymous with quality in the area of milk and milk products and had become a household name in the eastern part of India. Baurani dairy was the first to introduce Khoa making machine in this region to cater to the needs of the growing demands of milk products.

DRMU provided modern technologies in animal breeding and feeding to the farmers. Technical input services including artificial insemination, balanced cattle feed/ bypass proteins feed, better fodder varieties and emergency veterinary health services not only helped in raising and sustaining milk production but also ensured a better quality of life in the village. It created employment opportunities not only in rural areas but also in urban areas by engaging dealers and retail outlets for its variety of wholesome products.

In a largely male-dominated society, Barauni Dairy had made an effort to eliminate the gender bias by accepting women into the main stream of co-operatives. Women now run their own village dairy cooperatives better and more efficiently than men. It helped to change cultural attitudes set over the centuries. Most women did not harbor higher political ambitions as their male counterparts and were committed to running their cooperatives. They visited the Union to learn to be more effective and efficient in running their cooperatives beneficially.

The Barauni Dairy was adjudged the best performing dairy for the year of 1997-98. Cost reduction and technology management, modernization of process and plant technology, quality assurance program leading to ISO 9000 and HACCP certificates were claimed to be hallmark of this dairy. It was conferred with "National Industries Excellence Award" by World Economics Progress Society New Delhi for its contribution towards socio-economic growth of rural India by providing rural employment.

Despite its glorious past, Barauni Dairy struggled, over the past few years, to maintain its march towards excellence. Service standards had fallen procurement of milk had gone down, resulting in the drying up of revenues, private players had become very aggressive. The newly appointed M. D, Mr. Das Naryan Singh realized that these problems had unfortunately coincided with two years of disastrous flooding in Bihar.

Source: Adapted from COMPFED document.

[1] AMUL was a milk and milk product brand promoted by the Gujarat Cooperative Milk Marketing Federation (GCMMF). It had a marketing network that covered all of India. ² US$1= Rs45 (approx.) on May 30, 2011.

[2] Village cooperatives collected the milk from farmers and provided prices based on its fat content and quantity on a monthly basis.

[3] Operation Flood was implemented in three phases up until 1996 (Phase 1: 1970-1980, Phase 2:1981-1985 and Phase 3: 1985-1996). The main objectives of Operation Flood were to increase milk production, to augment rural incomes and to provide fair prices to consumers and producers. www.nddb.org/aboutnddb/operationflood.html, accessed March 20, 2009.

[4] National Dairy Development Board,www.nddb.org/aboutnddb/operationflood.html, accessed March 20, 2009.

[5] Jharkhand was a part of Bihar state before 2000. It separated from Bihar on March 20, 2000 and became the 28th state of India. However, a decade later, the majority of marketing organizations treated this new state as a part of Bihar state and operated as if Bihar and Jharkhand were still a single market possessing similar challenges and providing similar opportunities.

[6] Tetra paks protect the milk from airborne microorganisms. Milk in tetra paks can be stored for approximately six months without refrigeration.

[7] A dietary supplement containing live bacteria or yeast that supplements normal gastrointestinal flora, given especially after the depletion of flora caused by infection or ingestion of an antibiotic drug.

[8] D. V. Ghanekar, "Taxing Dairy Coops: A Case for Reconsideration," National Cooperative Dairy Federation of IndiaLimited, 2008, www.indiadairy.coop/IndianDairymanMar08.html, accessed March 30, 2009.