Chairman's Speech: 34th Annual General Body Meeting

34th Annual General Body Meeting held on 17th June, 2008

Madam and Gentlemen,

The main priority of every nation is to ensure food security for its citizens. The best way to achieve this goal in a harmonious and sustainable manner is by ensuring economic well-being of the men and women who feed our nation. The founding fathers of our nation had clearly elucidated that farmers are the backbone of India and unless they prosper, our nation cannot realize its growth potential. Sardar Vallabhbhai Patel knew that India will achieve true independence only when economic welfare of its farmers is assured. To achieve his vision, he inspired creation of institutions like Amul, which are responsive to the genuine needs of rural India. Shri Lal Bahadur Shastri strongly believed that our farmers will make our country self-sufficient in terms of food requirements, provided they are adequately supported with appropriate public policies with respect to input and output pricing and marketing. Shastriji repeatedly emphasized the fact that our food security systems should be largely based on domestic production, since agriculture provides livelihood to a vast majority of our population. During his tenure as Prime Minister, he inspired creation of institutional structures which enabled India to achieve self-reliance in the dairy sector.

The giant strides that India has taken in terms of ensuring food security for its citizens during the last sixty years, may get compromised, if our policy makers do not take consistent and long term measures that sustain the momentum. Certain sections of our national polity, as well as media, are vociferously advocating short term fiscal measures such as reduction in import duties on agricultural commodities to reign in the demon of inflation. They are actively supporting the political convenience of sacrificing agricultural productivity at the altar of price containment. Rather than focus on diagnosing the root cause of this malaise, they seem content in treating the superficial symptoms of the disease. Such elements will surely benefit by critically examining the phenomenon of food inflation, from a global perspective.

Food inflation is a global epidemic which has affected every nation across the world. From China to France; from Fiji to Egypt; all national governments are struggling to contain rapid escalation in food prices. This phenomenon is not confined to food alone. Prices of most basic products and services have seen a swift rise in the last two years. Food riots and consequential civil disturbances have been reported from several countries. Some experts have even warned of an enhanced risk of war, if global inflation remains unchecked. According to certain estimates, global food prices have risen by more than 40% in 2007 alone. This has been led by 42% increase in prices of food grains and 50% increase in prices of edible oils. Our policy makers need to recognize that in face of a global crisis, short term fiscal measures taken by other nations have actually not helped to alleviate the situation in the past. On the contrary, such moves have only served to aggravate and further escalate the crisis in these nations, by severely hampering medium and long term agricultural growth and productivity. With their own domestic agricultural sector in a state of collapse, these countries are now completely dependant on expensive imports.

This phenomenon of energy-led inflation is a natural consequence of lop-sided policies followed by several national governments across the world. Diversion of fertile agricultural land from food production to biofuel production has already exerted profound and widespread ripple effect on various food commodities. Large scale production of ethanol and biodiesel has put tremendous pressure on global grain prices. Diversion of grain from food to fuel has already raised the risk of hunger for poorest people in the world, who will be hit the hardest. USA is the nerve centre of maize production in the world. In 2007, a significant part of US corn crop was used as fuel instead of being utilized as food for humans or feed for dairy and poultry sector. This has significantly raised the input cost for dairy industry, subsequently propelling prices of dairy products on an upward spiral. Along with adverse agro-climatic conditions such as the continuing drought in Australia, this phenomenon is largely responsible for the sharp increase in global prices of all dairy commodities, witnessed during the last one year. Countries which did not strengthen their domestic dairy production but were instead reliant on imports of milk products have already faced dire economic consequences, as reflected in their inflated import bills.

Often, higher costs are genuinely incurred by the producer on inputs and in ensuring timely availability of better quality, more nutritious and healthy products to the consumer. The interests of agricultural producers need not necessarily be in conflict with those of the consumer. After all, both are citizens of the same country with similar economic aspirations and equal political rights. In fact, their respective roles as producer and consumer also interchange frequently, based on the context of product and service being referred to. Higher economic realization from various products and services will enhance income levels as well as expenses, of both rural farmers as well as urban consumers. This itself provides motivation to increase output as well as productivity, leading to high economic growth of our nation. The focus of our policy makers should be on ways and means of containing the non value adding dimensions of inflation, which can be directly attributed to the new generation of middlemen and speculators. These elements seek to make inordinate profits by exploiting both the farmer as well as the consumer. By targeting these elements, our government can definitely alleviate some of the hardships faced by the common man. By supporting farmer owned organizations, our government can ensure that the maximum share of the consumer’s rupee goes back to the farmers themselves.

We need to appreciate the fact that even farmers need to recover their input costs, to stay in the business of producing essential commodities such as milk and food grains. Any short term administrative measure may actually lead to lower prices for agri-producers, thereby removing incentives to increase production. There are no shortcuts to ensuring sustained growth in the farm sector and ensuring food security. While we understand and appreciate our government’s concern towards containing inflation, we shall be grateful if the policy tools deployed by the government can strike a delicate balance between the interests of urban consumers and rural farmers. Our public policies should ensure a level playing field for the farmers, as well as remunerative returns. The only sustainable way to control unwarranted inflation in food products is to take concrete and long term measures towards incentivising farmers to boost production and thereby cover yawning supply-demand gaps. Our government must ensure that only uncultivable land is earmarked for industrial use. We must not allow prime agricultural land to be diverted towards bio-diesel generation or any other industrial purpose. A proactive rural infrastructure investment policy is required to reduce wastage in farm produce.

While the government is trying to control inflation by influencing prices of agricultural commodities such as rice and milk products, the prices of other basic commodities such as cement and steel are sky-rocketing, adversely impacting the life of the common man. While continuing on the path of economic reforms and liberalization, our government must ensure that appropriate priority is given to the agricultural sector. Our policy makers need to put in place, an effective buffer stock mechanism for dairy commodities, which will help in proper management of the demand-supply equation for milk products.

For the last 62 years our dairy farmers have toiled relentlessly to make India the largest milk producing nation in the world. They have invested their blood and sweat in enhancing milk production as well as productivity in our country. They have contributed immensely towards making India, self-reliant in terms of milk and dairy products. In the ‘50s, total milk production in India was only 17 million MTs and we were heavily dependant on imports of dairy products to fulfill domestic demand. In those days, per capita availability of milk in India was only 124 gm per day. Consumers had no option but to buy adulterated milk at exorbitant prices. The dairy cooperative movement led by Amul, changed this scenario forever, by unleashing the ‘White Revolution’ in this country. Cooperatives enabled farmers to get adequate remuneration for their milk, encouraging them to invest substantially in enhancing milk production. Dairy cooperatives helped to eliminate undesirable middlemen from the dairy business, enabling farmers to exercise control over the value chain for their produce. Consumers in urban India were beneficiaries in this process, since good quality milk at affordable prices became easily available in most towns and cities of India. Despite rapid population growth in this country, the per capita availability of milk in India has now increased to 245 gm per day, which is very close to WHO standards. Our nation owes a debt of gratitude to the millions of milk producers based in rural India, for successfully implementing the policy of 100% import substitution in the dairy sector. Through innovations in product formulations, packaging technology and distribution systems, our farmers have made milk products available to consumers, even in the remotest, far-flung corners of this country. If dairy cooperatives had not managed the demand-supply equation for milk products in India so effectively, our import bill for dairy commodities, today, would have been as staggering as our import bill of crude oil. In the backdrop of sharp escalation in global dairy prices, any dependence on dairy imports would not only have ruined our economy, but would also have severely damaged the nutritional health of our nation.

In the medium and long term, the most effective way to guarantee food security and to safeguard the economic and nutritional health of our country is to enhance domestic production of agricultural commodities, including dairy products. This noble goal can be achieved only by ensuring optimal remuneration to our farmers, motivating them to invest adequately in increasing production output, as well as productivity. Our policy makers must abstain from resorting to ad hoc cosmetic fiscal measures, such as reduction in import duty on Skimmed Milk Powder; which may seem politically convenient in the immediate term but will be potentially harmful in the long run. By strengthening the hands of our farmers, who form the backbone of this country, we can propel India on a positive trajectory of prosperity and rapid economic growth.

I now present to you, our Federation’s Annual Report and the Audited Accounts for the year 2007-2008.

MILK PROCUREMENT

Total milk procurement by our Member Unions during the year 2007-08 averaged 75.90 lakh kilograms (7.6 million kg) per day, representing a quantum growth of 12.9 per cent over 67.25 lakh kilograms (6.7 million kg) per day achieved during 2006-07. The highest procurement as usual was recorded during January 2008 at 98.81 lakh kilogram (9.9 million kg) per day. This increase in milk procurement is very impressive, against the backdrop of 4.5 per cent growth registered during the previous year. During the peak procurement period, we have successfully demonstrated our ability to process almost 10 million liters of milk per day.

SALES

During the year, sales of our Federation registered a quantum growth of 22.9 per cent to reach Rs. 5255.41 crores (Rs. 52.55 billion). This is an extremely impressive growth, when viewed from the perspective of 13.4 per cent growth that we had achieved in 2006-07 and 29 per cent growth achieved in 2005-06. Our sales performance has been consistent in recent years and we are confident of maintaining these excellent results in the coming years, as well. In global terms, our turnover is $ 1.3 billion, at the existing currency exchange rate.

I am also pleased to note that our Federation has done remarkably well in most of the value-added consumer packs. Sales of Amul Milk in pouches have grown by 48% in value terms. In 2007, Amul Milk was launched in Jaipur and was received enthusiastically by consumers. Pouch milk is the largest contributor to the turnover of the Federation. UHT Milk has also shown an impressive growth of 60%. We have expanded our range in UHT milk category; through the recent launch our innovative calcium enriched variant, Amul Calci+. Following the successful launch of Amul Kool Café last year, we launched Amul Kool Koko in 2007, because of which our sales in the Flavored Milk segment has seen an exponential increase of 39%. Our policy of continuous product innovation was accorded global recognition, when we received the prestigious International Dairy Federation Marketing Award 2007 for the launch of Amul Probiotic Ice-cream.

Our sales in Amul Processed Cheese have shown consistent and very impressive growth, year after year. In 2007-2008, we recorded 27% growth in sales for Amul Processed Cheese, yet again. At the same time, we also managed to achieve quantum growth of 39% in the sales of Amul Cheese Spread. In the Infant Milk Food category, our brand Amulspray registered a growth of 19%. In the dairy whitener segment, Amulya recorded a growth of almost 20%. We managed to register double-digit value growth in Butter, despite intense competition in this category. In our effort to ensure that all sections of our society are able to afford Amul Butter, we have given special emphasis to low unit value packs, in our marketing effort. In line with the prevailing trend of wellness and health-consciousness, we have recently launched Amul Reduced Salt Butter.

Extending our policy of innovative product launches, we have introduced Amul Probiotic Dahi which has helped to increase our sales in the curd category by 35%. Since there is a growing demand for pure and natural products in India, we have introduced pure natural vanilla ice-cream in a wide range of pack sizes.

RETAILING

The strategic thrust placed on opening Amul Parlors since 2002 has now started yielding the desired results. We had anticipated the paradigm shift in macro economic scenario and the burgeoning threat of organized retailers. Amul Parlors will enable us to counter the potential threat from competitors. They will also increase the visibility of the Amul brand in the retail market. Our own outlets enable us to interface directly with consumers and provide an ideal platform to showcase our entire range of products.

Through a concerted team effort, we have managed to create 2300 Amul Parlors in 2007-08, from which a sales turnover of Rs.107 crores was generated. Our outlets have not only helped brand Amul to become ubiquitous but also have managed to provide a very rewarding employment opportunity to hundreds of entrepreneurs across India. During the new financial year, we have taken a goal of setting up 10,000 outlets by March 2009. To achieve this challenging goal, we have identified certain potential locations such as Railways, Airports, Universities and Shopping Malls.

EXPORT

As you are aware, there was a ban on exports of milk powder during initial six months of the year and hence our export of bulk milk powder was adversely affected. However, it is my pleasure to inform you that our export turnover has more than doubled during the year. We have recorded turnover of Rs 125 crores this year against the last year’s turnover of Rs 60 crore. However, we have been able to perform extremely well in exports of consumer packs with very encouraging growth in ethnic Indian products like Paneer. We are planning to focus more on consumer products and brand building during the coming years in the global market so that brand “Amul” can truly become “The Taste of India” to the entire world.

DISTRIBUTION NETWORK

Consumers expect marketers to deliver products in the locations and forms they require. To meet expectations of such demanding consumers, alignments of our four Distribution Highways of Fresh, Chilled, Frozen and Ambient products were already made by introducing Project DIL. Subsequently, a major initiative was taken to enhance distribution network to smaller towns. About 1200 distributors in small towns across India were added during this initiative. Today about 3000 Distributors ensure availability of our products across India, whether it is in Leh or Lakshadweep, in Kutch or Arunachal. Simultaneously, to augment fresh milk distribution in various markets of India, approximately 1400 exclusive Milk Distributors have been inducted.

Last year, we divided the retail market into 14 specific segments to achieve further distribution efficiency. This year our focus was on inducting distributors having expertise in servicing such specific market segments. This initiative is yielding results by way of ensuring wider availability of our product range.

The role of distributors in our business process has never been more diverse or more important, as it is today. As a matter of fact, we consider our Distributor to be the real “Marketing Manager” of our organization. To enhance business performance of our Distributors, a workshop on Marketing and Sales Management was designed in collaboration with a premier business school. The objective of the entire initiative was to upgrade the knowledge of our Distributors in terms of contemporary Business Management Practices, so that they can perform well not only as our business partner but also as Marketing Managers. During the year, 659 Distributors have undergone this programme in 39 locations.

Cold Storage is an extremely essential component in the Federation’s distribution process. Unfortunately, availability of efficient cold storage facilities is grossly inadequate in our country. To cope up with the increasing need of suitable cold stores closer to our markets, we have continued our endeavour of creating the Federation’s own cold stores this year in various locations across the country. We now own 24 state-of- the art cold rooms of different sizes.

To get an exposure to our cooperative structure, our culture as well as operational systems and processes, every year we invite our distributors, major retailers and other business partners to Anand, for Amul Yatra. So far, about 7000 Distributors and other business partners have participated in this Amul Yatra.

COOPERATIVE DEVELOPMENT PROGRAMME

During the last eight years, our Member Unions are implementing Internal Consultant Development Programme for developing self leadership among member producers and thereby enabling them to manage their dairy business efficiently, leading to their overall development.

During the year, Member Unions conducted workshops on Vision Mission Strategy for primary milk producer members and Village Dairy Cooperatives. Facilitated by specially trained consultants, 894 Village Dairy Cooperative Societies have conducted their Vision Mission Strategy Workshops, prepared their Mission Statements and Business Plans for the next five years. Till today total 5,322 village dairy societies have prepared their five year Business plans. The programme has prompted milk producers to initiate activities at villages such as Clean Milk Production, Water Management, Planned Animal Breeding, Animal Feed management, Improved Member Services Management, Information Technology, Integration and Networking, which has very far-reaching and long-term effects on the milk business.

As a part of the Breeding Services Improvement Programme, during the year Member Unions have continued implementation of the module of Improvement in Artificial Insemination Services and imparted training to 226 Core groups at the village level. In order to increase an awareness about the dairy industry scenario and impart leadership skills to the Chairmen and Secretaries of the Village Dairy Cooperatives, Member Unions in collaboration with Federation, are conducting Chairmen and Secretaries’ Orientation Programme at Mother Dairy, Gandhinagar. During the year 924 Village Dairy Cooperative Societies have been covered under this programme involving 1,796 Chairmen and Secretaries of the Village Dairy Cooperatives.

During the year, our Member Unions continued to encourage increased participation of women milk producers in the Dairy Cooperative Societies. To develop their skills and enhance leadership qualities, Member Unions organized Self Managing Leadership Programme at Prajapita Brahmakumaris, Mount Abu for 1,100 women resource persons along with Chairmen and Secretaries of 250 village dairy societies.

In order to strengthen the knowledge and skill base of young girls and women of the villages about milk production management and to motivate them to implement scientific milch animal breeding, feeding and management methods for their animals, the Federation, with technical collaboration and resources of the Anand Agriculture University, has initiated an animal husbandry programme for women resource persons of the Member Unions. During the year, 464 women resource persons have been trained under this programme.

As envisaged last year, our Member Unions have successfully initiated Fertility Improvement Programme in their milkshed area, to improve fertility of milch animals. During the year Member Unions have implemented this programme in 892 villages.

With a mission of planting one tree per member, our Member Unions celebrated the 60th year of Independence on 15th August, 2007 in a unique way. Our 18 lakh members have planted one sapling each across 19 districts of Gujarat and demonstrated their commitment towards preserving and contributing to the improvement of the environment.

INFORMATION TECHNOLOGY INTEGRATION

To strengthen business linkages with the business partners, GCMMF has enhanced its “Amul e-Groupware System” by adding more features like e-mailing the invoices and ledgers to business partners, announcing various schemes online, calendar facility etc.

“Video conferencing” is rapidly gaining in popularity, which provides business with the ability to meet and to work with others over a distance. For real time communication, better brainstorming, knowledge sharing and information gathering, we have installed and implemented Video conferencing System at our Head Office, Zonal Offices and a few Sales Offices.

The world is moving towards virtual reality by creating virtual world on the Internet. Our Federation has taken the initiatives towards virtual commerce by creating an online virtual Amul Parlor in the Second Life, an online virtual world. GCMMF has further advanced the use of Geographical Information systems by implementing GIS based Sales Analytics solution across various offices.

ACCELERATING ON A TRAJECTORY OF PROSPERITY

During the last 62 years, our Amul cooperative movement has served as an effective catalyst in transforming the socio-economic landscape of rural India. In the process of enhancing the nutritional and economic health of our nation, we have also ensured prosperity for 2.7 million families, spread across 13000 villages in rural Gujarat. During the peak winter months, this year, we have ably demonstrated our efficacy and efficiency in processing as much as 10 million litres of milk per day. Through creative marketing and innovative product launches, we have been able to leverage effectively on the rising income levels and growing affluence among Indian consumers. While ensuring easy availability of ‘value-for-money’ milk and dairy products to all our citizens across the country, we have also been able to tap the growing demand for value-added milk products which provide higher remuneration to our farmers. Having successfully countered the competitive challenge posed by multinational corporations, as well as the domestic private sector, we are well poised to steer the dairy cooperative sector into an era of further prosperity and growth.

While a glorious future certainly beckons us, our ability to actually realize its promising potential, depends entirely on the efficacy with which we are able to overcome the external and internal challenges that we face today. Globalization is a phenomenon that we cannot wish away and its politico-economic impact on our business needs to be clearly understood. We are more vulnerable to global changes than ever before. Remote events such as adverse agro-climatic conditions in Australia, diversion of maize-crop from feed to fuel in U.S., reduction in subsidies given to dairy farmers in EU, can deeply impact prevailing conditions in the domestic Indian market. Enhanced competition and proliferation of imported brands on our Indian retail shelves is a reality that we will have to embrace. Innovative technologies, creative ideas and new products that emerge on the global horizon are swiftly making a beeline for the Indian market.

In order to effectively counter such challenges, the entire dairy cooperative sector will have to be even more adaptive, flexible and responsive to market realities. We need to be more agile and fleet-footed in terms of adopting cutting-edge technologies and investing in accelerated product innovation. We will also have to ensure that we continue keeping our finger on the pulse of Indian consumers. As we have done in the past, we shall have to continue incorporating the best emerging industry practices, from around the world, into our key business processes. We need to explore new avenues of further leveraging on information technology to streamline our business systems.

To enhance our efficacy and competitiveness, we need to be more pro-active at all stages of our value-chain. Adoption of new breeding practices and focused approach towards increasing productivity of our milch-animals should be the highest priority for all dairy cooperatives. Effective use of latest inputs and best technology for enhancing milk production will be of immense benefit to our farmers. Through process re-engineering, we will have to maintain and further increase our operational efficiencies, so that our costs remain under control.

The current leaders of dairy cooperatives in India have an enormous responsibility on their shoulders. The entire nation expects us to exemplify virtues of selfless dedication and visionary leadership. Like our illustrious predecessors such as Shri Tribhuvandas Patel, Dr. Verghese Kurien and Shri Motibhai Choudhary, we will also have to personify our core values of integrity, excellence, customer-orientation, quality-consciousness, innovation, commitment to farmers and employee-satisfaction. The success of our Amul cooperative movement can also be attributed to the culture of professional excellence that we have nurtured and encouraged in our organization. It is our responsibility to ensure that this culture of professionalism continues to prevail in all aspects of our business operations. Ultimately, it is our obligation towards our nation, to propel the Indian dairy sector towards a position of dominance on the global dairy map.

ACKNOWLEDGEMENTS

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

We are grateful to the Government of India for the immense support received on numerous occasions. We are also thankful to the Government of Gujarat for all the help and cooperation, extended to our organization.

The National Cooperative Dairy Federation of India has been providing us with invaluable support in coordination with other agencies and organizations. The National Dairy Development Board has played a role in our growth and development. I am very grateful to them.

The Institute of Rural Management, Anand, as always, has contributed to the perspective building and professionalisation of the management of the cooperative sector. We express deep gratitude for its support.

We are indebted to Vidya Dairy for having organized training programmes on dairy technology for our employees. We are also grateful to the SMC College of Dairy Science, Anand, for strengthening the dairy cooperative sector, by providing technically skilled manpower. We express our sincere thanks to the College of Veterinary Science and Animal Husbandry, Anand, for creating a talent pool of veterinary doctors to serve our milk producers.

Our advertising agencies, bankers, insurers, management consultants, suppliers and transport contractors have been of great help to us in managing our growth and our partners in our success. We acknowledge their contributions and commit ourselves to continue and strengthen this fruitful alliance in all 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 cooperation without which we would not exist.

Lastly, we thank the officers and staff of our Federation for their continued perseverance, loyalty and unflinching efforts devoted to our cause.

Thank you.

For and on Behalf of Board of Directors

P G Bhatol
Chairman