Amul: Deary Cooperative in India Essay Example

These leaders advised the farmers to form a cooperative and supply directly to the Bombay Milk Scheme instead of selling to Polson Dairy, which offered low prices to the producers. Consequently, the Kaira District Cooperative was established to collect and process milk in Kaira territory. The milk collection process was also decentralized because most producers were small-scale farmers who could only deliver 1-2 liters of milk per day. Village level cooperatives were created to organize these marginal milk producers in each village. The first modern dairy of the Kaira Union was set up in Anand, which became popularly known as AMUL dairy. This dairy had the capacity to pasteurize 300,000 pounds of milk per day, produce 10,000 pounds of butter per day, 12,500 pounds of milk powder per day, and 1... (the text is cut off here).The Cooperative has successfully developed and produced skimmed milk powder from buffalo milk, which is a first on a commercial scale anywhere in the world. This achievement has laid the foundations for the modern dairy industry in India, considering its large buffalo population. As we fast forward to the year 2000, the dairy industry in India, especially in Gujarat, has undergone significant changes. India has emerged as the largest producer of milk globally, with Gujarat leading the way in terms of milk and milk product production through its cooperative dairy movement. The Kaira District Cooperative Milk Producers’ Union Limited, located in Anand, has become the center of dairy development in the region, making AMUL one of the most recognized brands in India and ahead of many international brands. Initially starting with one shared plant in Anand and two village

cooperatives for milk procurement, the dairy cooperative movement in Gujarat has evolved into a network of 2.12 million milk producers (referred to as farmers), organized into 10,411 independent milk collection cooperatives (known as Village Societies). These Village Societies supply milk to thirteen separate dairy cooperatives (called Unions), with AMUL being one of them.Gujarat Cooperative Milk Marketing Federation (GCMMF) acts as the sales entity for the merchandise of all Unions in Gujarat. GCMMF has 42 regional distribution centers in India and serves over 500,000 retail establishments. It also exports to more than 15 states. While these organizations are separate legal entities, they are loosely connected with a common fate. A recent study ranked GCMMF among the top 10 FMCG companies in Gujarat, with AMUL being recognized as the second most well-known brand in India among both Indian and multinational offerings.

In 1966, Amul hired Sylvester daCunha as the managing director of the advertising agency AS to create a new advertising campaign for Amul Butter. DaCunha designed a series of billboards with topical ads relating to daily issues. This campaign became widely popular and earned a Guinness World Record for being the longest-running ad campaign in the world. Since the 1980s, sketch artist Bharat Dabholkar has been involved in creating the Amul ads, rejecting the trend of using celebrities in advertising campaigns. Despite facing political pressure, daCunha's agency has maintained its policy of not backing down. Some of the more controversial Amul ads include one commenting on the Naxalite rebellion in West Bengal, another regarding an Indian Airlines employee strike, and one featuring the Amul butter girl wearing a Gandhi cap.Amul has hired DraftFCB+Ulka to create trade names

for its products including Amul milk, cocoas, paneer, ghee, and ice-cream. The White Revolution, also known as the constitution of Amul, inspired the Indian filmmaker Shyam Benegal to make his movie Manthan (1976) based on it. The White Revolution brought abundance from a small amount of milk production and distribution and demonstrated the power of collective strength. A group of poor farmers in Gujarat took action that was beneficial for society rather than for themselves alone. There are various factors driving the restructuring of the dairy business, including managing fewer large plants instead of many under-utilized small plants, the need for more milk supply and decreasing membership, the demand for a wide variety of products, improvements in trucking and milk handling for long-distance transportation, entering new international markets, seeking marketing power, and attracting investment from outside cooperatives. AMUL in India has learned from experiences and practices in dairies worldwide but has also developed its own organizational structure.AMUL, a cooperative of small town co-ops, aims to bring about a change in the lives of marginalized farmers in India. The AMUL experience has attracted interest from anthropologists, agricultural economists, and political scientists in the development community. Their research focuses on the role of AMUL in reducing social and economic inequality among co-op members, the sociological aspects of cooperation, the interface between the dairy co-op and rural power dynamics, and the relationship between the State and the Cooperative. Interestingly, AMUL has been able to maintain its independence from the government unlike other co-ops in India. Studies have examined the effectiveness of AMUL's operations, including the use of mobile veterinary dispensaries and wireless communication to connect mobile units to

service centers since 1951. They have also evaluated initiatives such as crossbreeding programs in the early 1970s that have significantly increased milk productivity (Patel, 1988).AMUL’s Pursuit of Excellence AMUL’s pursuit of excellence in the business environment of emerging economies like India involves combining efficiency-related enterprises with expanding the base of marginal providers and consumers. The core elements of AMUL’s efforts are as follows: • Integrating market and social development in an emerging economy by recognizing the interconnectedness between various environments that impact the lives of marginal milk farmers and the unmet needs of consumers. Additionally, AMUL transformed the supply chain paradigm to reduce consumer costs while increasing provider returns. • Understanding that to achieve their objectives, AMUL needed to benefit a large number of people, including both providers and consumers. While operating on a large scale posed risks due to potential poor control and increased resource requirements, it also created momentum to attract more people and support additional providers and consumers. • Recognizing that long-term success required developing robust, replicable, and transparent values in people and processes. • Understanding that financial viability was crucial for the cooperative to remain competitive.Leadership: Kaira Union (or AMUL) had the support of national leaders in the Indian independence movement, while its local leaders were trained in Gandhian simplicity and had strong connections with the poor farmers of Anand whom they had mobilized. The primary local leader, Tribhuvandas Patel, led the movement to create cooperatives for small and marginalized farmers, enabling them to compete against investor-owned enterprises and avoid bureaucracy. Tribhuvandas served as the first Chairman of the cooperative and was skilled in organizing village producers, instilling in them the

belief in the power of cooperation and their right to improve their living conditions. He was known for his fairness and honesty, establishing a strong foundation of trust among network members. Another notable aspect of his leadership style was his ability to trust and empower the directors of the cooperative, inspiring their complete commitment. Verghese Kurien, who played a crucial role in shaping the future of Kaira Union and the milk industry nationwide, was one such director. Many young individuals left well-paying jobs to help realize the dream of making India the milk capital of the world.Kurien, having learned from Tribhuvandas' persuasive field speeches, formed a group of competent directors at various levels of the organization. These leaders were established in different organizations within the network. Tribhuvandas recognized the need for a technocratic director who shared his concern for farmers and had the determination to organize marginalized producers. Convincing farmers to join the cooperative required unwavering commitment, a positive attitude, and a desire to improve the lives of the poor. Verghese Kurien possessed these skills and had connections with the government. He was charismatic in his communication and dedicated in his efforts. Over time, he developed a strong bond with the poor farmers, whom he always referred to as his employers at the cooperative. Together with Tribhuvandas, he would visit villages and address the details of how the milk collection cooperative would operate, including how trucks would collect milk from village societies and how to care for the cows. All of these plans aimed to help struggling milk farmers escape poverty and break free from the control of middlemen. The operational details were carefully planned

and executed.He and two close associates worked on designing dairy works and conducting experiments to make powder from American bison milk. This project was ridiculed by those in the dairy industry, including international assistance bureaus. However, Tribhuvandas and Kurien were able to convince the government of the value of their efforts and secure support for various cooperative projects.

Kurien's greatest strength lay in his ability to persuade people that the cause of rural farmers was important, thus establishing a shared value. Eventually, he convinced the government to replicate the AMUL model in almost all states of the country.

AMUL's business strategy is driven by two main objectives: ensuring long-term sustainable growth for its member farmers and providing value to a large customer base through low-priced milk and dairy products. The strategy, which has evolved over time, involves simultaneously developing suppliers and customers. From the early stages of AMUL's formation, it was recognized that matching supply with demand was crucial for sustained growth. Given the undeveloped state of the market and milk suppliers, their simultaneous development was vital for the industry's continued growth.The organization also recognized that the poor infrastructure in India meant that market forces alone could not achieve the desired growth. Therefore, both AMUL and GCMMF implemented various strategies to ensure such growth. For example, when AMUL was established, most consumers had limited purchasing power and were value-conscious with very low consumption levels of milk and other dairy products. As a result, AMUL adopted a low price strategy to make their products affordable and offer value to the consumer. This strategy has been widely recognized as successful and remains a key aspect of AMUL's strategy to

this day. Overall, 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 has ensured the industry's growth over an extended period of time.

Cost Leadership: AMUL's goal of providing a value proposition to a large customer base naturally led to a choice of a cost leadership position. Considering the low purchasing power of Indian consumers and their limited discretionary spending power, pricing AMUL's products as low as possible was the only viable option. This focus on costs had significant implications for managing its operations and supply chain practices (described later).

Focus on Core Activities: Due to its small beginnings and limited resources, AMUL prioritized focusing on its core activities.it was clear that AMUL would not be able to handle all aspects of milk production and delivery to consumers. As a result, AMUL decided to focus on its core dairy activities and rely on third-party companies for other related needs. This philosophy is evident in every aspect of AMUL's operations, including research and development, production, processing, selling, distribution, and retailing. For example, AMUL concentrated on processing liquid milk and creating a variety of dairy products through research and development. On the other hand, the logistics of milk collection and product distribution to customers were handled by third parties. However, AMUL made sure to provide necessary support services to its members whenever it identified a lack of market development for such services. In the early stages, smaller and less prominent member farmers did not have access to financing, veterinary services, and fundamental knowledge of animal farming. Therefore, AMUL actively sought out and

collaborated with partners to provide these essential services. The management of third-party service providers was a well-established practice by GCMMF and AMUL long before the concepts of core competency and the role of third parties in supply chain management became popular.The Unions recognized that the nucleus activity for the Unions ballad in processing of milk and production of dairy merchandises. As a result, the Unions focused their efforts on these activities and related technological advancements. Selling efforts, including brand development, were taken over by GCMMF. All other activities, such as milk aggregation logistics, distribution of dairy products, and sales through traders and retail shops, were entrusted to third-party service providers. Some of these third parties are not part of the organized sector and lack professional management. To maintain control and ensure quality and timely deliveries, the Unions and GCMMF have implemented various mechanisms (see the sub-section on Coordination for Competitiveness later in the paper for more details). This is particularly important for perishable products like liquid milk. AMUL's finance strategy focuses on being self-sufficient and relying on internally generated resources for funding its growth and development. This decision was made due to limited access to funds in the developing financial markets and a desire to avoid dependence on government support and bureaucracy.AMUL's fiscal scheme can be characterized by two elements: (a) the retention of excess funds for growth and development, and (b) limited or no credit recognition, meaning that all transactions are done in cash. For example, payment for milk procured by small town societies is made in cash within 12 hours of procurement. Similarly, finished products are not dispatched without prior payment from distributors.

This strategy was crucial given the limited liquidity of farmers/suppliers and the lack of banking facilities in rural India. This approach strongly supported AMUL's vision of growth and development, despite being different from industry practices followed by domestic and multinational competitors.

The organization of AMUL is structured as a cooperative of cooperatives. Each village society, functioning as its own cooperative, is a member of the AMUL cooperative. This allows for the advantages of scale and consistency in decision-making. The founders of Kaira Union recognized that in order to achieve their objectives, a large number of marginal farmers had to benefit from the cooperative. They understood the importance of building a network of stakeholders that would attract more rural poor to participate in dairy farming as a means of livelihood.The web needed to support various components, including the organizational web controlled by the proprietors' voice, a physical web of support services and products, and a network of small farmers that could bring the benefits of a large corporation to the market. Establishing this organizational web was a complex task. A loose alliance was formed with GCMMF representing the clients, unions representing milk processors, and village societies representing farmers. Competition in the market ensured that the entire web responded to customer needs with competitive prices. The goal of ensuring that returns to farmers aligned with cooperative objectives was achieved through farmer representation at all decision-making levels across the web. The mediators had to operate efficiently and on thin margins to ensure that most sales profits went to the producers. This ended up being a hidden blessing as it kept operations lean and provided a cost-based advantage for the

entire web.AMUL established a group to standardise the procedure of forming farmers into small town societies. The group also had to develop the necessary systems to operate the cooperative democratically, productively, and with concern for its members. This included setting up procedures for milk collection, testing, payment to farmers, and subsequent sale to the union. They also handled accounting and ensured timely collection and dispatch of milk on established milk routes. The Village Societies Division at AMUL represents the small town societies in their dealings with the union. Cooperative development programs at the village level have become an important part of their strategy to build a network. AMUL is responsible for developing and servicing small town societies, increasing milk collection, procuring milk from societies, transporting it to cooling locations, and addressing farmers' and societies' issues. Their main goal is to ensure that producers receive maximum benefits. The Village Societies Division coordinates all of these activities, and milk collection follows a precise schedule on predefined routes.The field staff of this division not only helps village societies interact with the Union on various issues such as improving productivity, resolving disputes, and obtaining funding for equipment purchases, but they are also responsible for establishing new societies, which is a crucial activity at AMUL. The organizational structure of AMUL allows for the efficient use of resources while still maintaining the democratic involvement of individual members. This system requires strong leadership to achieve consensus on important matters – a process that benefits the organization in the long run. GCMMF, which is the marketing arm of the network, manages the physical delivery and distribution of milk and dairy products from all

Unions to customers. GCMMF also makes decisions regarding market development and customer management. These activities include long-term planning as well as medium- and short-term operational decisions. As mentioned earlier, the introduction of new products and selection of product mix and markets should align with the growth strategy and be synchronized with milk supply growth. GCMMF's demand growth strategy focuses on developing markets for high-value products by gradually transitioning customers from low-value products.GCMMF ensures a healthy customer base for its low-value products by allocating an adequate amount of milk supply to these products. By doing so, they are able to generate additional profits by converting the milk into high-value products. Unlike most FMCG companies, GCMMF does not heavily invest in advertising and promotion, instead focusing on efficiency and offering lower prices. GCMMF uses umbrella branding for all its products, such as liquid milk and various milk products sold under the brand name AMUL. The advertisements aim to create a common identity and evoke national pride. In addition to marketing, GCMMF also collaborates with the Unions to coordinate the supply of milk and dairy products. They procure from multiple production plants operated by the 13 Unions, which in turn work with Village Societies registered with each Union. GCMMF distributes its products through third-party distribution centers managed by GCMMF's exclusive distributors.The distribution of GCMMF's products to retail stores across the country is managed by GCMMF sales staff. These products are sold through the FMCG retail network in India, with a majority of these retailers being small. Milk is delivered directly to homes by sellers. In 1999, GCMMF introduced web-based ordering facilities for its customers, establishing a well-defined supply

chain to fulfill orders placed through this channel.