Integrated Milk Co-Operatives in North-West Uttar Pradesh: Organisation, Functioning and Performance

Ind. Jn. ofAgri. Econ. Vol.51, No.4, Oct.-Dec. 1996

Integrated Milk Co-operatives in North-West Uttar Pradesh: Organisation, Functioning and Performance

V.P.S. Arora and T.S. 13hogal* The first co-operative activity in dairy enterprise in the country started with the organisation of Katra Co-operative Milk Society in 1917 at Allahabad (Uttar Pradesh).In 1938, the Lucicnow Milk Producers' Union was established, followed by similar establishments at Allahabad(1941), Varanasi(1947), Kanpur (1948), Haldwani (1949), and Meerut(1950). To provide effective impetus to the dairy development programme in the state, the State Co-operative Dairy Federation was established in 1962. The Operation-Flood 1,11 and ifi schemes were launched in the state in 1970-71, 1982 and 1987 respectively. At present, about 60 districts of the state are covered under the dairy development programme of the co-operative sector. In this paper an attempt is made to analyse and present the organisational set-up,system of functioning and performance of integrated dairy co-operatives in the north-west region of Uttar Pradesh (U.P.).

RESEARCH METHODOLOGY The study is conducted in the north-west region of U.P., well known for progressive development in agriculture and dairying. Through random sampling, Meerut district was selected for an in-depth study. From Meerut district, two blocks one having high concentration and the other having low concentration of milk animals per hectare of crop area were selected randomly. From each sample block six villages having a dairy co-operative and ten milk producers from each sample village were randomly selected for the study. While secondary data are obtained from District Co-operative Milk Union, primary data are collected from 120 sample milk producers for the year 1993-94.The data are collected through cost accounting method,taken fortnightly from the milk producers and dairy co-operatives. Linear time trend equations were fitted to the time-series data while primary data are analysed by applying simple statistical measures of tendency. The sample milk producers are cate- gorised as small (having one milk animal), medium (having 2-3 milk animals) and large (having 4 and more milk animals)for the purpose of analysis.

AN OVERVIEW OF DAIRY CO-OPERATIVES A co-operative milk supply union was organised in 1950 at Meerut which started col- lecting milk from the villages and supplying it to the local markets in Delhi and Meerut. The union continued its activities for about a decade. In the meantime, the Government of India established the Delhi Milk Scheme(DMS) in 1959-60 to ensure milk supply to the local population at cheaper rate. The milk was collected through contractors and 10 milk unions. Out of these unions, seven were in Meerut district. These unions functioned in ,a rather lopsided manner till 1977 and gradually became defunct. The collection and supply of milk practically became the monopoly of contractors.

* Professor and Head, and Associate Professor, respectively, Department of Agricultural Economics, G.B. Pant University of Agriculture and Technology,Pantnagar-263 145 (U.P.). CO-OPERATIVES IN RURAL ECONOMY 745

The Operation Flood-I was launched in the state by the Pradeshik Co-operative Dairy Federation(PCDF) in order to replicate the Anand Model of organising and functioning of co-operative societies. Though the organisation of societies was taken in three blocks of the district(Meerut) in 1972, the real work started in 1978 with the posting and functioning of Spear Head Team (SHT)from National Dairy Development Board (NDDB). By 1981, a team of 27 employees, drawn from Meerut milkshed, under the guidance of Spear Head Team,organised 198 milk procurement co-operatives when the phase-1 ofOperation Flood-I ended. The real beginning of dairy co-operatives in Meerut district was made in 1980, with the establishment of Gangol Dugdh Utpadak Sahalcari Sangh Ltd., Meerut(DUSS) at Partapur (Meerut). The Sangh (Union)continued to function under the control of Feeder Balancing Dairy (FBD), set up in 1978 till late 1986, after which the Union started functioning inde- pendently. The Operation Flood-II was implemented in the district in 1982 and the area of jurisdiction of Meerut milkshed was reduced to Meerut district only in view of increase in the number of functional societies and increase in the quantity of milk handled. The performance of dairy co-operatives in Meerut district since 1980-81 is presented in Table 1.

TABLE 1. PERFORMANCE OF DAIRY CO-OPERATIVES IN MEERUT DISTRICT

Year Number Total Average Average Emer- Artificial Number Number Quantity of Quantity of func- member- milk milk gency insemi- of artifi- of calves animal of fodder tional ship procure- procure- veteri- nation cial inse- born feed sold seed sold societies ment per ment per nary centres mination (tons) (quintals) day (kg) day per cases cases society attended (kg) • (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) 1980-81 280 15,431 42,454 152 864 18 1,300 698.00 1981-82 329 17,080 40,622 123 1,195 27 1,754 638 936.50 1982-83 383 19,833 54,826 143 1,627 58 3,174 589 2,048.70 4.50 1983-84 318 24,889 30,999 97 1,055 92 4,895 663 1,997.70 85.00 1984-85 370 29,760 47,210 128 1,669 120 9,065 733 1,188.00 79.00 1985-86 455 37,655 70,663 155 3,010 128 12,825 1,641 2,155.80 266.00 1986-87 494 41,747 52,882 107 3,692 146 16,924 2,521 1,935.50 177.37 1987-88 433 42,230 33,379 77 3,098 137 17,101 3,819 2,932.40 17.56 1988-89 422 42,380 30,636 69 3,609 122 18,580 3,636 418.50 53.05 1989-90 401 43,646 41,731 104 5,322 120 21,417 5,038 593.50 69.90 1990-91 395 44,495 36,328 92 6,097 126 26,329 5,173 1,663.20 203.78 1991-92 435 44,724 47,955 110 5,160 120 28,697 4,214 1,062.50 116.67 1992-93 462 44,944 61,736 134 462 120 35,481 8,038 1,825.10 286.05 1993-94 465 44,937 47,253 102 1,984 120 39,113 7,431 2,663.05 394.45 Source: Gangol Milk Producers' Co-operative Union Ltd., Meerut. ORGANISATIONAL STRUCTURE The DUSS, Meerut, is entrusted with various tasks relating to dairy development in the district.The Union is federated with the apex body at the state level,the PCDF,and is closely working with the National Milk Grid(NMG) and the State Milk Grid(SMG). Its activities include organisation of village dairy co-operatives (VDCs), operating chilling plants, receiving milk from sister DUSSs under SMG, handling and processing milk at FBD, supplying dairy products to consumers through NMG,SMG, Regional Marketing Office (RMO)and city supply network, manufacture and supply of animal feed and seed offodder crops to members,undertake veterinary services,launching and monitoring various schemes 746 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

like Co-operative Development Programme,Technology Mission on Dairy Development, Mini Dairy Scheme,etc. The FBD,the DUSS maintains, has a capacity to handle six lakh litres of Ina and is the biggest dairy in North India. To carry out its various activities the DUSS has developed an organisational set-up, headed by the General Body. The General Manager assists the Chairman, DUSS who in turn assists the Board ofDirectors. For organising/carrying out various activities,the General Manager is assisted by Managers,looking after the work of administration,factory, quality control, accounts and finance, engineering, transport, stores and purchase, management information system, procurement and technical inputs, etc. The entire milkshed is divided into 14 routes.The number ofsocieties per route is decided by the grade level of manager heading the route. Manager Grade ifi heads a route having upto 100 VDCs while Manager Grade IV or Senior Field Supervisor heads a route having not more than 50 VDCs.Each route in charge is assisted by Field Supervisors and a Manager (veterinary services). A field supervisor looks after 20 VDCs,if provided with a vehicle or else 15 VDCs.He keeps a direct liaison with the organisation of VDCs. A VDC is managed by a committee of nine elected members,one of them is elected as chairman. Only member milk producers are eligible for election to the committee. The term of elected members is five years. Each VDC is served by a secretary who is a paid employee of the society. The salary of the secretary varies according to the level of milk procurement. The VDCs under the jurisdiction of DUSS, Meerut,- are specialised co-operatives, engaged in milk collection business. The number offunctional VDCs has gone up from 280 in 1980-81 to 465 in 1993-94.The estimated time trend equation on the number offunctional VDCs is found as follows:

Y = 333.43 + 10.70*T R2= 0.52 (2.96)

An examination of the coverage of membership of milk producers in VDCs reveals that during the period 1980-81 to 1993-94, the total membership increased from 15,431 to 44,937. The estimated time trend equation is given below:

Y = 19047.48 + 2495.45*T R2 = 0.84 (310.08) * Significant at 1 per cent level. The figure in parenthesis is standard error. The performance of DUSS, Meerut, in terms of coverage of societies and coverage of membership, may, therefore, be rated as highly satisfactory. During the period, the membership per functional society has gone up from 55.11 to 69.34,in spite of not so impressive increase after 1986.

MILK PROCUREMENT - SYSTEM AND PERFORMANCE The DUSS/FBD, Meerut, procures milk through its VDCs as also from sister DUSSs under SMG.Each VDC has specified the time in the morning and evening for delivery of milk by its member milk producers. The secretary of the society is obliged to measure the milk, test the milk for its fat and solids not fat(SNF) content and make entries in the Pass Book in the presence of the milk producer-seller. This provision is often found violated by CO-OPERATIVES IN RURAL ECONOMY 747

most of the secretaries. The milk procured by the societies is lifted twice a day, i.e., in the morning as well as in the evening after the collection time of the society is over. For the collection of milk, the Union has divided the entire district in 14 routes. In the year 199-3-94, per route number of functional VDCs, number of non-functional VDCs, average milk procurement per day, average route length, average transport cost per day and average head load cost per day are estimated at 28.66, 11.66, 3,091.04 kg,316.84 km,Rs. 578.94 and Rs. 100.39 respectively. The ratio of number of functional to non-functional societies per route being 1:0.40 implies the need for revitalising the non-functional societies so as to minimise the cost of transport and to increase milk procurement. Studies are required to identify the causes of VDCs becoming non-functional and to optimise the route length. The secretary of the society is obliged to supply milk from the collection centre to the point from where the milk is lifted by the transporter. The secretary (or his helper) is paid transport charge, known as head load cost. The rate of head load charge is Rs.2 for the first 40 litres of milk for the first one kilometre. If the distance and/or quantity exceeds one km and/or 40 litres an additional two paise per litre/per litre per km is also paid. The head load rate is indeed very low. The rate needs upward revision. It is suggested that the rate should be raised to Rs.5 per km for the first 40 litres with a provision of its enhancement by 5 paise per litre for the quantity exceeding 40 litres. To start with, the total milk procured in the entire millcshed was directly being received at Dairy Dock of FBD, Meerut. However, as the number of societies increased and route distances became longer, milk chilling centres at various strategic points have been opened. The milk is now first collected at the chilling centre (save some routes) and then transported to the FBD. The per day milk procurement of VDCs in Meerut increased from 42,454 kg in 1980-81 to a peak of 70,663 kg in 1985-86 but declined to 47,253 kg in 1993-94. The overall trend, though positive, is found to be non-significant as shown below:

Y = 44146.34 + 226.65 T R2 = 0.006 (800.16)

Each member of VDC,on an average, supplied 1,004.19 kg milk in 1980-81 to the VDC, which has declined to 520.40 kg during 1993-94. Consequently, the trend in per day per society milk procurement is found negative as shown below:

Y= 131.91 - 2.79***T R2= 0.19 (1.64) *** Significant at 20 per cent level. The figure in parenthesis is standard error.

MARKET PENETRATION The degree of penetration of co-operatives in rural milk market where co-operatives exist may be seen in Table 2.It is revealed from the table that the co-operatives have captured a little over 50 per cent of milk market in the rural areas, wherever VDCs exist. Further, as the size of the dairy farm (and the size of marketed surplus) increases, the preference for co-operatives also increases. Nevertheless, private agencies still have a very high share in 748 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

the milk market, segmented for commercial milk producers. Moreover,the relatively lower participation by co-operatives in the _procurement of milk produced by small size dairy enterprises is against the very basic philosophy of co-operatives in India.

TABLE 2.PERCENTAGE SHARE OF VDC IN TOTAL MILK PRODUCER-SELLERS AND IN TOTAL MILK MARKETED SURPLUS ACCORDING TO THE SIZE OF DAIRY FARM AND SOURCE OF MILK, 1993-94

Per cent milk producers selling (to VDC) Percent share of VDC in the marketed surplus of Size of dairy farm Cow milk Buffalo milk Cow milk Buffalo milk Total milk (1) (2) (3) (4) (5) (6) Small - 38.53 - 39.23 39.23 Medium 53.85 48.30 50.38 45.57 46.30 Large 67.00 59.94 67.47 58.67 60.01 Overall 60.73 51.46 60.22 52.29 53.43

PRICING SYSTEM Milk pricing system of co-operatives takes into account both fat content and SNF in milk. Fat and SNF contents of milk are assessed at the spot when milk is delivered by the producer at the collection centre of VDC. Having recorded the fat per cent and lactometer reading (for SNF),the milk price is noted down with the help of a ready reckoner provided by the DUSS. The computation of SNF from CLR (corrected lactometer reading - as the fresh milk is covered with foamy layer, the actual lactometer reading is increased by one) is done as follows:

SNF = CLR/4 +(0.2 x F)+ 0.5

where F stands for fat percentage in milk. The CLR is 41so corrected for temperature dif- ferences. It is also to be noted that the prices of fat and SNF are not uniform for the entire range thereof. For instance, on February 17, 1993 DUSS,Meerut, was paying Rs.47.20 per kg of fat and Rs. 31.46 per kg of SNF if fat content is less than or equal to 6.3 per cent, and Rs.71.08 per kg of fat and Rs. 14.21 per kg of SNF if the fat content exceeds 6.4 per cent. The basis ofprice fixation in co-operatives appears reasonable to the extent that it encourages the milk producers for selling unadulterated milk. However, within this method, how the prices of fat and SNF and hence of milk is fixed, is an issue of debate. A comparative performance of different marketing agencies in terms of average milk price paid to dairymen between March 1993 and February 1994 is given in Table 3. It is revealed that co-operatives paid a higher price to the milk producers irrespective of the origin of milk, i.e., cow or buffalo as compared to milkmen and private vendors.

PAYMENT AND BONUS DISTRIBUTION SYSTEM The milk received from member societies is measured for quantity and tested for fat and SNF content at chilling plants or FBD as the case may be, based on which the payment is made to the society on a weekly basis. The value of milk is credited to the Bank Account of the society through advice, normally in the nearest branch of the District Co-operative Bank. From the bank account, the secretary and the president of the society, on due counter-signature of the concerned supervisory staff, draw the money for making payment CO-OPERATIVES IN RURAL ECONOMY 749

TABLE 3. AVERAGE MILK PRICE PAID BY CO-OPERATIVES AND OTHER AGENCIES TO MILK PRODUCERS DURING 1993-94 (Rs. per kg) Category of dairy farms Agency Small Medium Large Overall (1) (2) (3) (4) (5) Co-operative Cow milk - 5.77 5.37 5.51 Buffalo milk 6.81 6.25 6.14 6.31 Milkman Cow milk - 5.49 5.18 5.33 Buffalo milk 5.79 5.79 5.72 5.76 Private vendor Cow milk - - 4.83 4.83 Buffalo milk - 6.02 5.74 5.77 to the milk produce-sellers, normally on weekly basis. Delay in payment to the milk producers by a large number of VDCs during the study period is reported to be the reason for the shift of milk producers from dairy co-operatives to the private marketing agencies. The member-milk producers are paid bonus annually from the income of society. It is estimated that eight to nine per cent income over payment is made by the society to its members. A society having an average procurement of one quintal per day makes an income of Rs. 1,500 per month. Total expenditure of the society (on salary of secretary and other staff,rent, stationery, etc.) is to be restricted within 50 per cent of the income.The difference between the income and expenditure is taken as profit, of which 25 per cent is contributed to the reserve fund and one per cent to the education fund and the rest is used for bonus payment. Thus of the remaining 74 per cent of profit, 75 per cent is given as bonus to members,4 per cent as bonus to workers, 2 per cent is contributed to charity fund, 9 per cent is given as share dividend, 2 per cent is used as co-operative propaganda fund, and 8 per cent is used for livestock development. The amount of bonus is determined as per the quantity and quality of milk sold by member-milk producers.

PROCESSING/MANUFACTURING The processing of milk and semi-finished dairy products is undertaken by the Feeder Balancing Dairy(FBD), Meerut. The milk is procured, for the purpose, through a network of VDCs. The milk procured by the sister DUSSs in other districts is also handled under SMG and the semi-finished products like butter oil, white butter and milk powder are purchased. During 1993-94,the FBD,Meerut, purchased (procured) 172,10,409.50 kg milk through VDCs of the district and 244,94,211.80 kg milk from sister DUSSs.The entire milk was reported to be utilised giving an average yield of 99.5 per cent. It is ironical to note that the average(weighted) price of milk paid by FBD/DUSS,Meerut to its sister unions for the milk received is found much higher than the price it paid to its own members(Rs. 5.82 per kg). It is noted that besides whole milk, standard milk and liquid milk in other forms like toned milk, raw chilled milk, double toned milk, etc., the major processed dairy products are powder milk (in various forms), ghee and butter (table and white). Based on the report presented in the Eighth Annual General Meeting of the Union on May 2, 1994, in the total 750 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

cost of processing 87.61 per cent is accounted for the purchase of raw materials, viz., raw milk, butter oil, white butter, skimmed milk powder, packing material, chemical and detergents, while other expenses accounted for the remaining 12.39 per cent.

SALE OF DAIRY PRODUCTS The DUSS/H3D, Meerut supplies milk to institutional consumers like medical college, ESI hospital and districtjail, to local consumers under city supply and to Delhi Dairies under NMG.The sale of dairy products within the state is channelised through SMG and RMO in theform ofcity supply.Certain products are also sold through VDCs.Some of the products processed by DUSS, like Parag butter, Parag ghee, etc., have earned wide consumer acceptance, though these are still treated second to Amul products. The DUSS,Meerut, sold dairy products worth Rs.54.87 crores during 1993-94,of which 48.60 per cent, 49.31 per cent and 2.09 per cent respectively were realised from the sales of fluid milk (in difference forms) and manufactured dairy products and the products like lassi, cream,cattle feed, seed,etc. The maximum contribution in the total value of sales has been from whole milk (26.53 per cent).

INFRASTRUCTURE DEVELOPMENT The Union also undertakes several service activities in order to provide impetus to dairy development in the area. Important activities to list are: artificial insemination (AI), immunisation against epidemic diseases,emergency veterinary services, manufacturing and supply of cattle feed and seed of fodder crops. The number of emergency veterinary cases attended by the veterinary doctors of the Union has risen from 864 to 1,984 during the period 1980-81 to 1993-94. During the same period the number of Al centres has increased from 18 to 120, and the number of Al cases increased from 1,300 to 39,113. An increase in the number of calves born from Al has been noted from 638 in 1981-82 to 7,431 in 1993-94. The quantity of animal feed manufactured and sold and also the quantity offodder seed sold increased considerably during the period under reference (Table 1).

SUMMING UP After making an impressive start in north-west U.P. in the 1980s, dairy co-operatives deteriorated in performance during the early 1990s. A quick survey of the area reveals that of the total milk producers only 11.4 per cent are members of VDCs, and only 33.75 per cent of the total milk production in villages where VDCs function is procured by the co- operative societies. Thus there is a vast scope for increasing milk procurement by VDCs through organising VDCs in areas so far uncovered, revitalising the non-functional VDCs, motivating milk producers to become members of VDCs,motivating the medium and large dairy farmers to part with the entire marketable surplus, and inculcating co-operative spirit among the villagers. The functioning of VDCs in the area is, by and large, considered congenial for commercialisation of dairy enterprise,for minimising the exploitation of dairy farmers, for ensuring remunerative price to dairy farmers, for making available dairy products of acceptable quality to the consumers at reasonable price and above all for making milk market truly competitive. The need for dairy co-operatives to play an active role has increased manifold in the CO-OPERATIVES IN RURAL ECONOMY 751

present scenario where group action on the part of milk producers has become inevitable to withstand the competition forced on them through the entry of multinational corporations (MNCs)and other large private dairy processors. These MNCs and large private dairies are likely to exploit the milk producers in the absence of co-operative actions on their part. However, to meet this end the co-operatives will have to function not only as integrated institutions but will have to be managed by skilled, efficient and honest managers and co- operators. Moreover, co-operatives will have to assume the role of an active instrument for socio-economic transformation of traditional society into market driven modern economic society.