What is AMUL ?
AMUL is the brand name of the Gujarat Co-operative Milk Marketing Federation (GCMMF). It is set up to market the produce of the Dairy Co-operative Unions in the state. GCMMF sits at the apex of the pyramid of the Dairy co-operative movement.
For sake of ease, I am using the term AMUL to represent the structure represented by GCMMF/Co-operatives in this article (please see this for more details GCMMF/Co-operatives).
Why is AMUL different from a corporation ?
AMUL tries to expand the market for the farmer's produce and keep demand for milk and milk products well matched or ahead of supply of milk thereby ensuring that the farmer gets a good price for his/her produce. The objective of AMUL is to maximize the returns to the farmer not the profitability of AMUL. This objective of AMUL arises on account of its ownership structure. GCMMF the apex marketing agency is owned and controlled by the Co-operatives.
AMUL tries to give the highest price to the milk producer and convert the raw milk into products and sell it at the lowest possible price to the consumer. AMUL, by adopting this strategy has also become a formidable player in the market selling products at very fair prices and never exploiting customers - thereby limiting the behaviour of participants in this industry and the profits that can be made in the industry.
The actions that flow from AMUL's objective are
Sale of products at reasonable prices thereby spurring consumption
Penetration pricing for many products so that at all times new markets are created for the ever increasing output of milk
Creating a steady and growing market rather than exploiting profit making opportunities which may increase profits but reduce volume growth
High return on capital for dairy farmers and assured off-take and reasonable prices putting them on a virtuous cycle of growth
If a normal corporation would be in the business of procuring milk and selling it, its primary goal would be to minimize the cost of milk procured and maximize the sale value of the products - completely opposite of that of AMUL. This may be appear deluded (especially in light of AMUL's experience) as this tends to slowdown the variable which can help a business keep its dealings healthy - namely volume but this is the usual business logic.
In game theory terms, the dairy farmers are controlling the value chain rather than the merchant controlling the farmers. This is exactly as Sardar Vallabhai Patel had intended when he and few other leaders advised the farmers to get out of the clutches of the merchants/traders who were exploiting them and create their own co-operatives. Under the astute leadership of Tribhuvandas Patel, the dairy movement kept out all political parties from it as the farmers decided to only their identity of the farmer to the dairy meeting.
Why is the AMUL model important ?
We are suffering constantly from the problem of excess production and lack of steady remunerative price for many commodities. Even if the prices fall, its benefits never really reaches the consumer and is taken up by the manufacturer. This causes farmer distress during low prices without really adding to the demand or creating a market.
The AMUL model has changed these dynamics by creating a globally well known brand, a market and a strong sales marketing organization and distribution network. It is a proven model and has worked for over 60 years now and can be replicated. It takes zero investment and self-regulated as the weight of the society bears upon it and hence it is not easy to hijack it or sabotage it.
Traditionally when there is distress, governments announce ad hoc measures which cost a lot but accomplish very little in the long run.
AMUL is the brand name of the Gujarat Co-operative Milk Marketing Federation (GCMMF). It is set up to market the produce of the Dairy Co-operative Unions in the state. GCMMF sits at the apex of the pyramid of the Dairy co-operative movement.
For sake of ease, I am using the term AMUL to represent the structure represented by GCMMF/Co-operatives in this article (please see this for more details GCMMF/Co-operatives).
Why is AMUL different from a corporation ?
AMUL tries to expand the market for the farmer's produce and keep demand for milk and milk products well matched or ahead of supply of milk thereby ensuring that the farmer gets a good price for his/her produce. The objective of AMUL is to maximize the returns to the farmer not the profitability of AMUL. This objective of AMUL arises on account of its ownership structure. GCMMF the apex marketing agency is owned and controlled by the Co-operatives.
AMUL tries to give the highest price to the milk producer and convert the raw milk into products and sell it at the lowest possible price to the consumer. AMUL, by adopting this strategy has also become a formidable player in the market selling products at very fair prices and never exploiting customers - thereby limiting the behaviour of participants in this industry and the profits that can be made in the industry.
The actions that flow from AMUL's objective are
Sale of products at reasonable prices thereby spurring consumption
Penetration pricing for many products so that at all times new markets are created for the ever increasing output of milk
Creating a steady and growing market rather than exploiting profit making opportunities which may increase profits but reduce volume growth
High return on capital for dairy farmers and assured off-take and reasonable prices putting them on a virtuous cycle of growth
If a normal corporation would be in the business of procuring milk and selling it, its primary goal would be to minimize the cost of milk procured and maximize the sale value of the products - completely opposite of that of AMUL. This may be appear deluded (especially in light of AMUL's experience) as this tends to slowdown the variable which can help a business keep its dealings healthy - namely volume but this is the usual business logic.
In game theory terms, the dairy farmers are controlling the value chain rather than the merchant controlling the farmers. This is exactly as Sardar Vallabhai Patel had intended when he and few other leaders advised the farmers to get out of the clutches of the merchants/traders who were exploiting them and create their own co-operatives. Under the astute leadership of Tribhuvandas Patel, the dairy movement kept out all political parties from it as the farmers decided to only their identity of the farmer to the dairy meeting.
Why is the AMUL model important ?
We are suffering constantly from the problem of excess production and lack of steady remunerative price for many commodities. Even if the prices fall, its benefits never really reaches the consumer and is taken up by the manufacturer. This causes farmer distress during low prices without really adding to the demand or creating a market.
The AMUL model has changed these dynamics by creating a globally well known brand, a market and a strong sales marketing organization and distribution network. It is a proven model and has worked for over 60 years now and can be replicated. It takes zero investment and self-regulated as the weight of the society bears upon it and hence it is not easy to hijack it or sabotage it.
Traditionally when there is distress, governments announce ad hoc measures which cost a lot but accomplish very little in the long run.
Even today a large part of our population lives of agriculture. By creating organizations like AMUL, we accomplish many things in one stroke: Rural empowerment, women entrepreneurship, providing opportunities at village level to stop migration into cities, creation of income in villages which would allow Providing Urban Amenities in Rural Areas (one of the main cause of migration to cities)
Way forward ?
AMUL was created as an accident of history but we need to learn from it and create many more AMULs as a deliberate national design. Creation of more AMULs does not require much investments. In fact, it will be most effective if it done with zero investment from the government and 100% moral support from the government. All it requires is political will and leadership to organize the farmers and create a virtuous cycle of economic growth and social empowerment can be created which rewards hard work and enterprise.
The days of governments creating money and throwing them at problems without really solving anything are coming to an end. In such a scenario the AMUL models are worth their weight in gold.
We, as a nation, need to identify various areas where the farmers produce are not getting adequate value and create many more AMULs.
Last but not least we need to support and reward political leadership which will adopt these innovative engines of economic growth and not harp on the same cliched and failed models of economic development.
How accidental Amul's success was and is is vividly brought out in the book Accidental India by Shankar Aiyer, He has some great ideas on how to learn from such accidents!
ReplyDeleteYaa nice question..
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