Chairman's Speech: 30th Annual General Body Meeting

Adopted at their meeting held on 8th June, 2004 for presentation at the 30th Annual General Body Meeting

Gentlemen,

I am happy to welcome all of you to this 30th Annual General Body Meeting of your Federation. Thirty years ago the milk producers of Gujarat had come together and decided to create their own organisation to enhance the marketing capacity of the dairy cooperative movement. Looking back I think we can agree that they showed remarkable foresight in creating their own marketing organisation. That is in no small part because this organisation has delivered results - continuously beating competition of every type in the dairy business. This has been achieved at the least possible cost, ensuring the benefits reach both producers and consumers.

As you all know, Amul was founded on a sound business model: providing quality products to consumers at an affordable price. The Pundits have described our model as "value for money" and it has been adopted by a number of companies. While imitation may be flattery, most other organisations fail to understand that "value for money" is not just about low prices - it means offering the best quality products at the most reasonable price. As a cooperative, our faith requires that we safeguard the interest of both our major stakeholders - the farmers - and the consumers whose loyalty is essential to our continued success.

As I look forward, I foresee business opportunities expanding as never before. The Indian economy is growing at a very rapid pace. Disposable income in the hands of consumers has more than kept pace. The result is that our domestic market has been expanding at a pace that occasionally surprises even the optimist. We now need to challenge our distribution to reach remote markets with innovative products and services so that more and more consumers benefit from our wide and expanding range. Your Federation is taking steps both to deepen our market penetration as well as to accelerate its growth.

An expanding market inevitably attracts increasing competition. Today, every product category sees new entrants in our business. Competition may be from existing companies entering new categories or from new companies. Our experience and marketing prowess has enabled us to maintain a formidable distance between our competitors and us. However, there is no room for complacency. We must not only maintain our lead, we must increase it.

In our business, the technological and financial barriers for new entrants are not high. We must therefore leverage our experience as well as our procurement, processing, distribution and branding advantages to establish high entry barriers, continually raising these by innovation in every area.

On the external front, neither the US nor the EU had shown any willingness to consider reducing their high subsidies on dairy exports. It is a matter of some satisfaction that the Indian government has stood by its farmers by withstanding international pressure to lower tariffs on dairy products. We are grateful for this support. We are also confident that the government will continue to safeguard the interests of the Indian farmer by continuing to resist international pressure and domestic lobbying from vested interests to lower our bulwarks against unfair trade in agricultural and dairy products. Recently, the EU has introduced some reductions in its dairy sector subsidies - especially on butter oil, Skimmed Milk Powder and white butter. This marginally reduces the fear of European players competing for our domestic market from a position of price advantage. It also opens for us the opportunity to compete with European producers on a level playing field in neighbouring markets. With increased peace, cooperation and understanding among the SAARC nations, our regional market is expected to grow manifold across categories. But for us to gain a meaningful share in the emerging markets, our unions and marketing teams must meet the challenge of performing at levels that are the prerequisite for success.

You will be pleased to know that your Federation has grown substantially in both volume and value terms in the last year. That we have grown by over Rs.430 crores in the dairy line highlights your Federation's versatility and robustness. The icing on the cake has been a more than 15 percent increase in our farmers' returns.

I now am pleased to present to you your Federation's Annual Report and Audited Accounts for the year 2003-2004.

MILK PROCUREMENT

Total milk procurement by our Member Unions averaged 51.13 lakh kilograms per day, a marginal decline from 52.35 lakh kilograms per day, achieved in 2002-2003. However, the good monsoons experienced during last year and the better procurement prices on offer are expected to encourage higher milk production and procurement in the current year.

SALES

During the year, your Federation's sales registered a growth of 5 percent increase to reach Rs. 2,881.96 crores including consignment sales of Rs.62.95 crores. The dairy line grew by about 18% despite the loss of a sizable edible oil business. This year, the sale of Amul Milk in pouches increased by 34 percent in value terms. A notable development in the area of liquid milk in pouches has been the successful launch of Amul Milk in the Delhi market during November 2003. Within under 60 days of launch, we had achieved sales of 1 lakh liters per day. UHT Milk has grown in both value and volume terms by 60 percent, which shows that it has really come upon the high growth stage. Amul ice cream achieved a sales value growth of 11 percent, and has come out as the undisputed market leader. Amul and Sagar brand pure ghee sales in value increased by 17 per cent over the previous year. Despite intense competition, sales value of Amul Butter grew by 19 percent and that of milk powders has firmed up further. The sales of the Amul Cheese range increased by 13 percent. Products like Flavoured Milk, Amul Fresh Cream, Paneer, Mithaimate, Softy Mix, and fresh curd demonstrated their potential to become dominant brands in the coming few years.

DISTRIBUTION

During the year, the major development on the distribution front was the development and alignment of four distribution highways-those of Fresh Products, Chilled Products, Frozen Products and Ambient Products. This is a significant achievement because it allows us to develop synergies among all our product lines and to leverage these highways to introduce and distribute new products as per market demand. I take pleasure in declaring that no other organization in India has been able to develop this kind of channel synergy so far.

Another major initiative undertaken during the year was the Time-based Military Technique (TMT) of distribution. This has been deployed to effect a nationally synchronized mass distribution of our products with the objective of achieving total channel penetration on a single day. I am pleased to declare that this initiative has proved to be very successful. Most of our products launched or re-launched through this technique have seen significant gains in distribution and availability.

After Distributor Salesmen in the previous year and Distributors in the year before last, it was the turn of the top Retailers across the country to participate in the Amul Yatra Programme. As you are aware, the Amul Yatra Programme is a unique experiment conducted by your Federation to bring our channel partners face to face with our cooperative institutions, activities, culture and achievements through a guided tour in and around Anand. A total of 114 Distributor Salesmen and 482 top retailers from across the country participated in the Amul Yatra this year. With the opening of several new milk markets and 3 separate Milk Sales Offices at Mumbai, New Delhi and Boisar, the number of Milk Area Delivery Agents has increased. 95 Milk Area Distribution Agents also visited Anand for Amul Yatra. Distributors have further enhanced their infrastructures in terms of installation of cold storage arrangements, enhanced bank guarantee limits with Federation and introduced good quality delivery vehicles. An objective evaluation was done in the form of distributor renewal and Performance appraisal.

For understanding the level of adherence to infrastructural and procedural norms laid out by Federation and compliance to the same by our Distributors, a pilot initiative of Distribution Audit was undertaken for 70 Wholesale Distributors. With one of the strongest cold chain distribution network in the country today, Federation today owns 13 state-of-the-art cold rooms at various depot locations.

EXPORTS

I know that you will be pleased to learn that we have posted more than 50% growth in the volume of consumer pack exports. This reflects strong and growing consumer faith in your Amul brand. As you are aware, during the year Northern India had faced a severe milk crisis. At the request of our government, we diverted milk powder stocks to Delhi thereby depriving our export market. As a result, Federation's overall export turnover has dropped by 40 percent. I am sure you will agree, however, that our first duty is to the Indian consumer.

I am pleased to inform you that our Long Life milk has been very well accepted in the UAE and Singapore markets. We have launched UHT milk in Hong Kong and Sri Lanka market. We have also made a successful beginning in export of ghee to Australia.

INFORMATION TECHNOLOGY INTEGRATION

You will be glad to know that your Federation has further advanced our technological leadership by implementing a Virtual Private Network (VPN) with secured fiber optic connectivity which, with deployment of the "Amul Online ERP" System, will facilitate electronic transactions between member unions and the Federation offices, providing a seamless and smooth flow of information that enhances operational efficiency. The Federation now enjoys a significant advantage in rapid reaction to changing business demands.

Your Federation is bolstering our brand identity as a farmers' co-operative through the Internet based "amul.coop" URL and e-mail addresses. This will continually remind the world's consumers that we are a cooperative, and proud of it. This identity gives us a vital business advantage and facilitates Amul brand penetration across the world. It also strengthens our co-operatives by bringing our members together and closer to consumers.

Your Federation's achievements have been honoured at the International CIO 100 Symposium and Award ceremony in Colorado Springs, USA where we received the CIO 100 award for its excellence in positive business performance through resourceful IT management and best practices.

COOPERATIVE DEVELOPMENT PROGRAMME

During the last four years, our Member Unions have implemented an Internal Consultant Development (ICD) intervention focused on developing leadership among member producers, helping them to better manage their dairy business.

During the year, Member Unions continued to implement the module on Vision Mission Strategy (VMS) for primary milk producer members and Village Dairy Cooperatives. Facilitated by specially trained consultants, 1,073 Village Dairy Cooperative Societies (VDCS) have conducted Vision Mission Strategy Workshops, and have prepared Mission Statements and Business Plans for the next five years. The VMS module has prompted milk producers to initiate activities at villages that have far-reaching effects on the milk business.

The success of the program has led to Member Unions focusing on implementing this VMS module and developing Business Plans for all VDCS, thus strengthening them to face the fierce competition ahead.

Continuing the Cleanliness Drive at village level, Member Unions have trained 8,455 core groups of milk producers and VDCS management. On October 2nd, 2,970 VDCS celebrated Red Tag Day, an effort to raise Cleanliness awareness. The Unions also presented awards to the VDCS that raised cleanliness standards to the highest levels.

As a part of the Breeding Services Improvement Programme, Member Unions have continued implementation of the second module of Improvement in Artificial Insemination Services. In the villages, 3,374 core groups have been trained and a decision has been taken to extend the program to include all the VDCS that offer breeding services. A mass de-worming campaign has been undertaken to fortify the breeding services. During the year, Member Unions implemented an Artificial Insemination Audit Competition that identified the best performing VDCS and Artificial Insemination Workers who received awards as a motivation for continued improvement.

With the objective of encouraging professional management by Milk Producers and dairy cooperative societies, Member Unions have initiated Members' Business Development Programme (MBDP). During the last three years, 2,483 villages and 1,53,108 milk producers participated in the programme. This has resulted in introduction of new scientific animal husbandry management methods on a significant scale.

A Chairmen and Secretaries' Orientation Programme is being conducted at Mother Dairy, Gandhinagar. Member Unions, supported by your Federation, carry out this program to increase awareness regarding the dairy industry scenario and to develop leadership skills among Chairmen and Secretaries. During the year, 5,797 chairmen and secretaries from 2,944 Village Dairy Cooperative Societies participated in the program.

An ongoing emphasis of our Member Unions has been to encourage increased women milk producers' participation in their Dairy Cooperative Societies. To develop and enhance leadership skills and qualities, Member Unions organised three Self Managing Leadership (SML) workshops at Prajapita Brahmakumaris, Mount Abu which attracted the participation of 3,100 women resource persons along with the Chairmen and Secretaries of 750 VDCS.

WHAT THE FUTURE HOLDS

As you are all aware, there is a steady increase in consumer expectations. Product and service quality is rapidly becoming the minimum threshold for consumer acceptance. To achieve and maintain competitive advantage, innovation in product design and delivery are increasingly essential. Innovation must now define us as an organization. We must innovate at each stage in our value chain - production, procurement, processing, marketing and branding.

Innovation cannot be mandated or forced out of people. It is everywhere a function of the quality of people and environment. We need to have enough skilled people working in a self-actuating environment to produce innovation. In these times of increasing market opportunities, we need to devise more effective ways of attracting and retaining skilled human resources. It is to be realized that just as the market is expanding for our products, so it is opening up new opportunities for the skilled people that we need to tap the market. Further, it does not suffice merely to retain skilled human resources. It is also necessary to provide them an adequately self-motivating work environment that draws out the best out of them on a sustained basis. Therefore, our competitiveness must also encompass effective human resource management. To this end, we have to find new strategies.

In the past, our illustrious leaders like the late Shri Tribhuvandas Patel, Bhurabhai Patel, Jaswantlal Shah - to name only a few - understood the importance of professionalism in the management of cooperatives. They always encouraged attitudes and activities geared towards a results orientation. Today's leaders have a duty and an obligation to carry forward that tradition of identifying and nurturing professionalism.

You would recall that last year I had shared my feelings and reservations on NDDB's initiative of making joint ventures-and that too with majority holding of the Government. I am happy to inform you that most of the State Federations of India have declined to accept such partnerships where the Government is in majority. Even where it was accepted, the cooperatives are now changing their minds and reverting to the pure cooperative movement. I am saying this not because I am happy per say about the failure of the joint ventures, but because the leaders of cooperatives have understood that they have a great responsibility towards farmers, consumers & the nation. And in honouring this responsibility they have to work hard with commitment and sincerity. They should ensure the highest level of professionalism at the cooperative level. They should give the professionals full freedom to perform instead of interfering in operational matters-thereby limiting the growth of the organisation. I hope that you would appreciate my viewpoint and see to it that our leaders rise to this level of performance.

From the year 1994, our unions have been engaged in the practice of third party validation of its practices. Since then, we have been awarded the ISO 9002:2000, the HACCP, the ISO 14001 and similar marks of our excellence in milk procurement and processing. We have also been given a certificate of merit from IMC Ramkrishna Bajaj National Quality Award during last year. I would stress that we sought such certification not because the Federation needed endorsement from outside agencies regarding its best practices. Rather, achieving them serves the very important purpose of encouraging the standardization of our production and marketing related processes and the infusion of a self-sustaining momentum into these processes.

I find that such certifications are also very necessary in our village dairy cooperative societies' election processes. The importance of standardization of our village society election processes lies in their instrumentality in throwing up genuine and visionary leaders. It determines the future of the cooperative movement. Standardization and transparency in our village society elections can come only through the continuous and impersonal adherence to a well documented process that an ISO 9001 recognises.

The year 1994 was an important watershed for your Federation. It marked our bold foray into the brave new world of portfolio diversification and new product development. It was at this time when we took our first steps outside the security of our traditional products: powders, butter among others. Since then, we have emerged as the food organization with what may well represent the most diversified product portfolio - ranging from ice cream and dahi to Long Life and Flavoured milk. We have learnt to be on the constant lookout for changing market requirements and to adapt to these changes proactively.

Today, there is no doubt that we are a part of the world market. As everywhere else, the market trend in India is towards the growing importance of fresh products. The coming years will see increasing volumes being generated from fresh milk, Long Life Milk, curds and the like. Because our milk procurement and processing capacity is unparalleled in the country and the region and because we have a brand equity that is unsurpassed in the food business sector, your Federation is in a position to leverage these assets to effectively command the market leader's position in the emerging fresh dairy products market. However, here too we cannot be complacent. We must constantly create and update our competencies in these products so as lead, set and exceed market expectations.

Your Federation has now developed competence in distributing fresh products on daily basis. This is equally true of long life products held at ambient temperature, products requiring deep-freezing during storage or transportation, and products that require zero degree temperature. This established competence is, and will continue to be, an essential element in building synergies among product lines - ultimately creating superior economies of scale.

Based on the work done in the last decade, the changes that we have built in the Organisation at all levels, and with the new portfolio of products we have developed, I feel confident of maintaining our market share growth. I also feel confident that your Federation will be able to increase its sales further by close to another Rs.500 crores in the current year.

Your Federation has always tried to be a step ahead of the market. It has always been a model to which other cooperatives have looked up as an example and inspiration as well as one from which many have benefited. Those who had scoffed at the idea of cooperation as a business model are today trying to emulate it. Thankfully, we need not be remembered for any of the wrong reasons. Amul has always been and remains a movement that stands for the farmer. We have always espoused the values of social justice, integrity and growth with equity. If Amul deserves to be remembered for anything, first and foremost it is for the difference we have made and are making in the lives of millions of farmers. Against all odds, we have managed to replace a million furrows of hopelessness with at least a faint line of the smile of hope. That line makes a difference. That puts the real shine on the face of India.

ACKNOWLEDGMENTS

Before closing, I would like to thank all those who have helped to make your Federation's operations successful.

The National Cooperative Dairy Federation of India has been providing us with invaluable support in coordination with other agencies and organisations. The National Dairy Development Board has played an important role in our growth and development. The Institute of Rural Management, Anand, as always, has contributed to the perspective building and professionalisation of the management of the co-operative sector. We express deep gratitude for their support.

Our advertising agencies, bankers, insurers, management consultants, suppliers and transport contractors have been of great help to us in managing our growth and are partners in our success. We acknowledge their contributions and commit ourselves to continue and strengthen this fruitful alliance in the times to come. We depend on the efficiency of our distributors, retailers and most important of all, the patronage of our consumers, who have come to regard our brands as synonymous with quality and value. While thanking them for their support, we assure them that we shall strive endlessly to delight them.

Our Member Unions are our strength. We thank them for their guidance, support and co-operation without which we would not exist. The Government of India and the Government of Gujarat have continued to offer support and encouragement, for which we are grateful. Lastly, we thank the officers and staff of your Federation for their continued perseverance, loyalty and unflinching efforts devoted to our cause.

Thank you.

For and on Behalf of Board of Directors

V. Kurien
Chairman