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Duel in dairyland
Nandini Lakshman |
January 25, 2003
At first glance, the two events don't appear to be connected. On Tuesday, Mother Dairy Foods Ltd launched its new butter in Delhi, Noida and Ghaziabad. Very soon, the new product will hit shop shelves across the country.
Last Friday, V Kurien, chairman and founder of the Gujarat Cooperative Milk Marketing Federation called for a one-and-a-half day seminar that brought together 30 academicians, state milk marketing federation representatives and bureaucrats from animal husbandry and dairy departments.
It was held in the sylvan environs of the Institute of Rural Management Anand in Gujarat. The agenda revolved around how to tackle the mounting competition to the cooperative movement, particularly in products like milk and butter. One person missing at the meeting: Amrita Patel, chairman, National Dairy Development Board, which controls Mother Dairy.
The meeting came in the shadow of a huge rift in the cooperative movement. On one side is the mighty Rs 2,300 crore (Rs 23 billion) GCMMF, which markets the Amul brand of milk and dairy products. On the other is the equally powerful NDDB which wants to strengthen its marketing arm -- MDFL, a wholly-owned subsidiary. The launch of Mother Diary butter is a precursor to many more new products that will compete with Amul in the marketplace.
NDDB believes that the Rs 7,000-crore (Rs 70-billion) milk cooperative market is getting much more competitive and wants to strengthen its position through a multi-pronged action plan with an outlay of Rs 800 crore (Rs 8-billion). This includes using MDFL to enter into 51:49 joint venture companies with state cooperative federations to assist them with marketing value added products and to help them in other ways to become self-reliant enterprises.
Kurien is opposed to the joint ventures and believes that if the state cooperatives are going to strike any deals, it should be with Amul. The result? A fierce battle between Kurien and NDDB chairman Amrita Patel, who was once his anointed disciple.
"It is an approach to prepare state cooperatives to face increasing competition and also create an effective entry barrier for competitors," says Patel. Already, Nestle, Britannia and now Hindustan Lever have launched an assortment of products like cheese, butter, liquid milk and yogurt sectors that Amul has been dominating. She claims that one possible reason why Kurien is opposing the joint ventures could be to protect the interests of GCMMF.
Kurien knows that cooperatives need to change, but he feels that the government-promoted NDDB's digression into marketing would mean even more government control for the state cooperatives. "More than worrying about the future of GCMMF, I would like to protect the interest of the other federations and milk unions since they are small and do not have the bargaining power," he says.
Other officials at GCMMF are also livid about NDDB's moves. Says B M Vyas, the mechanical engineer turned managing director of GCMMF, "We are not against the joint venture, but against NDDB, as a government organisation holding majority stake. What happens if the government wants to divest from the sector? Anyway, federations know better marketing than NDDB."
Such no-holds barred reactions are unusual in the world of dairying. So dairy experts say that while joint ventures appear to be a pet peeve, there is more to it than meets the eye. According to a bureaucrat who attended the workshop, the current spat between Kurien and Patel is more to do with the brand issue between Amul and Mother Dairy.
Temperatures, he says, have been rising ever since Amul pushed its range of ice creams into Delhi, a predominantly Mother Dairy territory, in January 2002.
Already, in the Rs 600-crore (Rs 60billion) ice cream market, Amul is selling 25 million tonnes followed by Hindustan Lever's Kwality Wall's at 18 million tonnes, Vadilal at 12 million tonnes and both Mother Dairy and Arun at 7 million tonnes each.
Also, for the last two years, Mother Dairy has been unfurling its national ambitions. First it hired people from where else, but Hindustan Lever. Then it began targeting consumers in a big way. Today, apart from dairy products like ice cream, yogurt and lassi, Mother Dairy, which has the Safal network also sells peas, rice, fruit drinks, jams, pickles, ketchup squashes and savoury snacks.
These actions have pitched Mother Dairy head on against Amul. But both NDDB and GCMMF claim that there is no brand war underway. "I do not see the beginning of a brand war, since the market has the space and the capacity to accommodate both the brands," says NDDB's Patel.
It is hypothetical, claims GCMMF's Vyas. "Nobody raises an eyebrow when Baskin Robbins comes from the US or Nestle from Switzerland to launch ice cream in Delhi. Amul ice cream has been launched in all the markets of India and Mother Dairy too is free to do the same," he says diplomatically.
Over the years, Amul has consolidated its position by laying out an enormous brand buffet and continues to get into everything that spells food. "We are launching a new product practically every month," adds Vyas.
That's because, the future of cooperatives is totally linked to milk procurement. Even as milk procurement has gone up, demand for liquid milk hasn't kept pace. In fact, in the last five years, farmers sloshed in 34 per cent more milk, from 130.71 lakh (13 million) litres in 1997-98 to 172.02 lakh (17 millin) litres in the year ending March 2002.
In the same period, daily liquid milk sales grew only 19 per cent to touch 134.23 lakh litres per day. Says Samar Datta, professor Indian Institute of Management, Ahmedabad, "It is a testing time for cooperatives. They have to increase the demand curve and look at the supply curve also. If your supply becomes scarce, demand will evaporate."
Compounding the issue is the entry of milk brands from Nestle and Britannia which are entering various states, the bastion of local cooperatives. So what are cooperatives doing with the surplus milk? To boost demand it is churned out into value added products like cheese, butter, milk powder and yogurt.
Also, until now, except for Amul, most of NDDB's regional brands, although selling in a few pockets outside, have largely remained regional players. So Verka in Punjab, Nandini in Karnataka, Vijaya in Andhra Pradesh, Saras in Rajasthan and Anchal in Uttaranchal, have co-existed with Amul. But while they dominate the liquid milk market in their own states, the value added products lack standardisation. That's where, Amul has the edge.
Now, Mother Dairy is displaying the same hunger as Amul. After ice creams, Mother Dairy's portfolio includes lassi, mishti doi, flavoured milk and now butter. There are also plans to launch mineral water.
In all this, marketers say that a strong second national brand could help cooperatives stave off competition from deep pocketed multinationals. Says a competitor, "From the looks of it, the emergence of Mother Dairy as a national alternative to Amul is taken as an affront by GCMMF, as it signals the growing clout of Patel and NDDB over the other state brands." Adds academician B S Baviskar, "Once you have retired, you have to withdraw." Kurien, 82, retired as chairman NDDB in 1998.
GCMMF's Vyas is more vocal. "For any federation, if they think it is their brand, they have to nurture it. It is like my family name. Matching of capital to meet surplus is not marketing," he says. He has tied up with two dairies in Tamil Nadu and Andhra Pradesh to market their surplus milk. This is being done both under Amul as well as their local brand names -- Salem and Vishaka.
Now, that's something Kurien has been wanting to do for many years. NDDB's Patel says that at one time, he did try to persuade other federations to sell their products under the Amul brand, but the effort did not meet with much success.
Kurien says, "I have a problem. I can survive without the umbrella, but the others may not. But in trying to save the others, I don't want to be seen to be committing hara-kiri. I don't want them to think that we are using big brother tactics."
So NDDB now wants to take over where Amul left off. "MDFL would assist state dairy federations to market their milk and milk products under their own brands. There is no plan to make a dairy federation brand as a sub-brand of Mother Dairy," says Patel.
But marketing consultants are not convinced. They say that by entering into joint ventures, MDFL is paving the way for phasing out many weak regional brands, by initially making them sub-brands of Mother Dairy. They point out to HLL managers in NDDB who would rather push for a consolidated national brand rather than a piecemeal presence to fight competition.
Brand wars like these are in a way, adding a new zest to the cooperative movement. NDDB has chalked out ambitious new plans. And both Mother Dairy and Amul are launching products at the drop of a hat.
This aggression comes at a time when the cooperatives are on the threshold of change. With provisions being made in the Companies Act, 1956 they will be able to register as cooperative companies (see box). Also, the World Trade Organisation diktat is around the corner, which could see many more multinationals in the sector.
Will all this change NDDB? Is it becoming more marketing oriented rather than farmer oriented? Samar Datta says that he fears that may happen. Adds Kurien, "I see a change in perception. This faith in cooperatives is something that may be Amrita Patel does not have as much as I have." But Patel has the last word: "There is no move to give a new face to NDDB in future. The main challenge for dairy cooperatives is to hold their place and expand the space they have so far enjoyed in the market."
Come March, at the next session of Parliament, the Indian cooperative movement will get a facelift. With competition snapping at its heels, the sector which has been governed by arcane laws until now, will see a special provision inserted in the Companies Act, 1956. Re-christened cooperative companies, they will come under the purview of the registrar of companies, instead of the registrar of cooperatives.
How will this change affect the sector? And how different will the new entities be from other run-of-the-mill companies that are governed by the act?
"It means a completely different culture as we get registered under the cooperative department. It gives us flexibility on many fronts," says V Kurien, the legendary founder and chairman of the Gujarat Cooperative Milk Marketing Federation, which markets the Amul brand of milk and dairy products.
While they will have to adhere by the audit procedures like any corporate, they will differ from ordinary companies in many ways. Not everyone can join a cooperative. Only users can enroll as members at a fixed membership fee. Quantum of business and not equity capital will see an election to the board. And there will be flexibility to raise capital from members and outside.
Take the case of Agro-Corpex India Ltd. The Rs 40-crore (Rs 400-million) listed poultry farmers' company has 7,000 farmer members. The criterion for a member? Anyone who has at least 250 birds can buy a Rs 10 share and enroll as a member. A decade later, it has a share capital of around Rs 50 lakh (Rs 5 million) and daily sales of 15 lakh (Rs 1.5 million) eggs.
Also, the new acts says in the governance of cooperative companies would be directly proportional to the business stake in the company. This is far removed from the one member-one vote norm of the prevalent cooperative act.
But nobody puts it as well as Kurien. "At the moment, the registrar of cooperatives thinks that Kurien is under him. The registrar of companies never thought that JRD Tata was under him. That's the difference."