R.S. Sodhi: 'The farmer owns the entire value chain, not just processing and marketing'
'If we earn more at Amul, we pay the farmer more'
Civil Society News, New Delhi
Amul is easily one of India’s most recognised and loved brands. Much of the following it enjoys is because of the consistent quality of its products. An equally important reason is that Amul is the outcome of a successful farmers’ cooperative in Gujarat. The money it makes serendipitously goes back to milk producers.
While the cooperative movement in India has generally been riddled with problems and failures, the Gujarat Cooperative Milk Marketing Federation (GCMMF) has shown how farmers can happily come together to go to market profitably.
The vision for Amul and the foundations of the organisation, headquartered at Anand, came from the legendary Dr Verghese Kurien. But Amul’s continuing success over the years is also a story waiting to be documented — particularly in the light of farmers in Maharashtra and Madhya Pradesh throwing their milk on roads to protest low prices. What does Amul do right that others can’t?
To find out, we spoke with R.S. Sodhi, the warm and unassuming managing director of GCMMF. Sodhi worked closely with Dr Kurien after graduating from the Institute of Rural Management (IRMA). Like his mentor did, Sodhi has stayed at Amul over the years and has seen the growth of the business and how it has primarily served the interests of farmers.
What is the impact Amul has had in the villages where you have been working for so many years?
Forty years ago people were migrating to Surat or Mumbai to work in the diamond sector. There was no source of livelihood. Agriculture was totally rain-fed. Today just one district is earning Rs 25 crore per day, and this money is gearing up its entire economy. The lady dairy farmer uses the money she earns to buy vegetables, household goods, pay school fees, or send money to her son or daughter studying elsewhere.
About three years ago I had attended a sabha of widows organised by a district union. Around 10,000 widows who were totally dependent on dairy-farming attended. One of them told me that when her husband passed away, her in-laws told her they couldn’t feed her. They didn’t have enough to feed themselves.
The lady had just one cow. She started giving that milk to the village cooperative society. From those earnings she bought another calf. Then she bought a buffalo. Not only did she get her children educated, she even sent one daughter abroad for studies and she now earns Rs 24 lakh a year. She isn’t well-educated at all and has no other assets or source of income.
So you don’t see poverty in the areas where you work?
See, for dairy you don’t even need land. You need two hands and the will to work. You don’t need to worry about market linkages. Every village has a cooperative society. You just go there and give them the milk. Based on quality and quantity you will be paid. Your payment is assured. Milk isn’t like other agricultural commodities where production increases in winter and prices fall.
You don’t have that kind of price fluctuation?
The price of dairy is steady and gradually increasing. The dairy farmer is giving milk to her own village cooperative society, to a dairy owned by her. The milk is converted into value-added products by Amul, India’s number one brand, and whatever value addition is done, the farmer gets the benefit. She owns the entire value chain, not just processing and marketing. She owns the cooperative — not the government or a private entrepreneur.
How much do you pay the dairy farmer for milk?
Around 80 to 82 percent of the price of the milk we sell goes back to the farmer. The rest meets all our expenses, including transportation and margins. If you see our balance sheet — supposing it is Rs 36,000 crore this year — by the end of the year our bottom line is nothing.
Every year if we are earning more, we raise the price of milk. Every farmer has a share in the cooperative irrespective of the milk produced. No farmer is interested in dividend.
So, whatever profits we make goes back to the farmer in the shape of price difference. If he gives more milk he gets more money. People are encouraged to produce more and participate more. We see farmers in distress in Maharashtra. They get Rs 17 per litre for cow’s milk. In Gujarat, farmers are getting Rs 30-31 per litre.
That’s a huge price difference...
Because in Maharashtra the balance goes to the private entrepreneur, the dairy fellow. The entrepreneur will want to maximise his profit. I am the CEO of a cooperative. My business goal and my board’s is to buy my raw material at as high a price as possible and sell my finished product at a price that enables me to sell all my raw material.
We don’t buy raw material based on the market. Rather we create the market based on our raw material. That’s why we sell at a most reasonable price and we keep a minimum gross margin or EBITDA (earnings before interest, taxes, depreciation, and amortisation).
If I was the CEO of a private company or a multinational my objective would be to buy my raw material at the lowest price possible and sell at the highest price possible. My performance would be based on my maximum gross profit or EBITDA.
In terms of pricing are you aggressive?
You see, branding is basically the tool we use for providing sustainable livelihoods. Our pricing is very clear — every Indian should be able to afford it. We believe in mass scale. No doubt our products, our brands, packaging, advertising is all premium. But our pricing is affordable.
The reason is simple. We want every consumer to buy Amul blindly. Dr Verghese Kurien, my mentor, used to tell us, in marketing you strive to create loyalty to your brand, trust, and then faith. Loyalty may be fluid. I might use Indigo today or Spice Jet tomorrow. But trust is created over time and the most difficult trait to create is faith. He would say, you must create unquestionable faith in the Amul brand.
How much have prices risen for farmers over the years?
If you look at the last eight or nine years, we have increased prices by around 8 to 9 percent. In the last one or two years, price rise has been minimal, at just 4 to 5 percent because internationally prices are under stress. There is massive recession. That is why farmers in Maharashtra are getting Rs 17 per litre when two years ago, they were getting Rs 27 per litre for the same milk.
Several international brands have tried to enter the Indian dairy market. Danone is an example. They have given up and gone. What is the lesson from this?
No international brand, be it Danone or Lactalis or Nestle, has come here for charity or for developing our rural society. They have come mainly for EBITDA. Amul and other cooperatives buy at the maximum price, sell at a reasonable rate and keep costing at a minimum. How can you compete in a market where the market leader operates with this philosophy? Also, we operate on a mass scale.
Of the total earnings that you have what would your balance sheet be?
Last year at the GMMF (Gujarat Milk Marketing Federation) it was Rs 29,000 crore. This year it will be around Rs 35,000 crore. The Amul brand has a turnover of about Rs 40,000 crore.
What does it cost you to run your business?
If I sell milk at Rs 1, the farmer will get 0.81-0.82 paise. For more value-added products like ice-cream where packaging is involved, it may be 0.50 paise, because of the 28 percent tax and our margins to distributors and retailers are high. Out of our total business 60 percent comes from milk.
Can you tell us about the services Amul provides to farmers?
We provide veterinary services. We have 850 doctors who go every week to villages. We also have emergency veterinary services. The farmer just has to make a call and within two hours our mobile doctors will come and treat your animal. For breed improvement we provide artificial insemination services. Then we provide cattle feed. Each of our unions has a cattle feed factory. We are the largest producer of cattle feed in the country, which we sell to farmers at a no-profit no-loss basis.
Many cooperatives in the agro sector have dissolved in disputes and politics. How come that has not happened with Amul? Do you have a dispute mechanism?
Wherever there are people there will be politics. Politics is part of a democratic society. We have 3.6 million members. I will not say there is no politics. It exists till the elections of the board. After that, decisions are taken based purely on business. I interact with the board. Amul is managed by professionals who have nothing to do with politics. There is no political interference.
Amul is India’s number one brand, but let me tell you, in each state its respective cooperative is the number one brand. You go to Punjab, it is Verka. In Bihar, it is Sudha. In Rajasthan, it is Saras. In Karnataka, Nandini is doing very well.
They may not be able to mark a presence like we do because we are independent. In those cooperatives the state government has a say. It will appoint the managing director, most probably an IAS officer for maybe one, two, or three years. Their term is short so they may not be able to implement their ideas.
In Amul we have great continuity. I have been with Amul for 37 years. I worked with Dr Kurien. In 44 years I am only the third MD since 1973. The DNA of our organisation was formed by its founders. What I have learnt is that it is important to transmit this DNA, our value system, to the people who join.
What is Amul’s DNA?
Very simply, first, we are working for farmers. Second is integrity. Dr Kurien told me, never compromise on integrity. Then there is excellence in whatever you do, whether it is standards or technology or buildings or design.
I am often surprised when an organisation is built by pulling in people from different organisations. Imagine what its DNA will be, I think.
How large is the strength of Amul?
We have a three-tiered structure. At village level, we have 18,000 cooperative societies. We have 18 district unions, each covering one or two regular districts. We have our processing facilities and our state cooperative federation at the apex. Where I work at the apex we have 1,000 people. The 18 district unions have about 15,000 people.
You are also expanding outside Gujarat?
About 15 percent of the milk we process comes from UP, Maharashtra, Rajasthan, Punjab, Madhya Pradesh, West Bengal and, more recently, from Assam.
It’s not nice to take milk from Gujarat for a processing plant in Kanpur or Lucknow. If I transport 200,000 litres of milk there, it will create a surplus in that region. So we source the milk locally. In Delhi about 60 percent of the milk we sell comes from around Delhi itself. We bring in the deficit. Outside Gujarat we have about 15 to 16 plants, and another eight to nine are leased plants.
But the eastern region is not a milk-producing area.
No, that is a myth. Eight or nine years ago when we went to Kolkata, we transported milk in railway tankers to the city. Then we started procuring locally and we were surprised. We got the best milk there from each village society, both in quantity and quality. Today, we sell about 900,000 litres of milk and it is bought from around Kolkata. Farmers in India want stable remunerative prices. This is what we realised. They need that assurance. In Assam we have just started procuring milk.
What are the popular cow breeds? There has been this controversy over desi versus foreign cows.
We do have good indigenous breeds like Kankrej, Sahiwal, Gir. But for commercial purposes farmers prefer the Holstein Friesian because it gives double the quantity that local breeds give. So farmers will keep desi cows but for business it is the foreign cow.
What is happening to the old cows?
What is it like to represent farmers? You could have headed any company.
When you work with a visionary like Dr Kurien for 30 years you get a different kind of high. In Amul you feel you are working for people who need you and really appreciate and respect you — the small farmer, the widowed lady, the landless people. When you see that smile on their faces, you feel along with your salary, you are earning blessings. Contrast that with working for a guy on Peddar Road who isn’t really bothered about you!