43rd Annual General Body Meeting held on 15th June 2017

43^rdAnnual General Body Meeting held on 15^thJune 2017

Madam and Gentlemen,

Indian dairy farmers can once again look forward to golden days ahead, with dairy commodity prices firming up in the last seven months. Across the world, dairy farmers have just emerged from a two-year depression in prices and there are strong indications of further improvement in global dairy prices during 2017, due to higher import demand from China. Decline in milk production last year in major dairy exporting countries such as New Zealand and Australia, as well as higher demand from Chinese importers due to decline in the number of milch animals in China, are the two major contributing factors leading to the upward movement in global dairy prices. Another significant global trend is the large differential in the price movement of fat-based dairy products and skimmed milk powder (SMP), largely due to the fact that Europe still has 350,000 MTs of SMP buffer stocks. Presently, the gap in global prices between dairy fat and SMP is at a record high. During the last two years, dairy farmers of New Zealand and other dairy exporting countries witnessed a 30% to 50% drop in farm gate milk prices, thus exposing their vulnerability to volatility in world dairy prices. The recent upward movement in prices has therefore come as a huge relief to farmers of these countries.

At a macro-level, Indian dairy markets were also impacted by the global trend, including dairy commodity markets, especially milk powders, which also witnessed a price slump in the last two years. During this period, farmers in North India and Maharashtra, especially those outside the dairy cooperative network, witnessed a sharp decrease in milk procurement prices, compelling them to reduce investment in cattle. A factor that went on to have an adverse impact on milk production in these regions. During recent months, the Indian and global markets experienced an encouraging increase in Ghee, liquid milk and milk powder prices. But the rise in demand for fat-based products pushed its price and preference over that of skimmed milk powder. With private Indian dairy processors and companies now forced to increase milk procurement prices, unjustifiable profit margins will be crunched leading to fair competition and a fair level playing field for dairy cooperatives.

In sharp contrast, our own dairy farmers who were part of the Amul Cooperative movement, were insulated from the sharp fluctuation in the global dairy scenario due to our long-term emphasis on consumer marketing and brand building. While dairy farmers world-wide were reeling from global slump in farm gate milk prices, our Amul family farmer-members went on to receive a 30% increase in the price of milk they poured into the cooperatives during last three years. The coming months present a golden opportunity for us with a rapidly improving dairy market scenario and an increase in demand expected for our entire basket of dairy products including fresh liquid milk.

Our mantra of rapid expansion had yielded rich dividends with the Federation’s sales turnover increasing 3.5 times in the last seven years, from Rs. 8,005 crore in 2009-10 to Rs. 27,043 crore in 2016-17. During this period, our farmer-members’ milk procurement prices more than doubled from Rs. 337 per kg fat in 2009-10 to Rs. 680 per kg fat in 2016-17. Since the Federation’s total milk procurement also doubled during this period, this effectively increased our dairy farmers’ income four-fold in the last seven years. Thus proving the efficacy of the Amul Cooperative Model in achieving our Hon. Prime Minister’s goal to double farmers’ income in six years. Going a step further we have trebled our production capacities for major dairy products during the last three years. During this period, we set up several new dairy plants including new dairy factories at Faridabad, Rohtak, Lucknow, Kanpur, Amreli and Kutch. Our new Cheese factory at Palanpur in Gujarat’s Bansakantha district was inaugurated by the Hon. Prime Minister on 10th December 2016. This has led to a three-fold increase in our Cheese manufacturing capacity. Our new dairy plants at Taloja in Maharashtra, Kolkata, Surendranagar and Ahmedabad are in various stages of construction and will further add to our capacities, when commissioned. We are also enhancing our milk powder manufacturing capacity with a new factory of 150 MT per day production capacity coming up at AmulFed Dairy, Gandhinagar, along with another new milk powder plant at Himmatnagar. We are also putting into effect significant capacity expansions for Chocolates and Paneer.

We have simultaneously enhanced our distribution footprint by adding 15 new Branch Offices in recent years and expanding our network of distributors, super-stockists and sub-stockists to reach millions of retail shops across the country. Using information technology, our common distributor management software application seamlessly integrates all our distributors into our business, enabling us to track and thereby enhance shop-wise sales, across the country. Product innovation has always been part of our DNA and has inspired us to launch more than 50 new products in the market during the last three years.

Our Indian economy experienced a defining moment in 2016 in the form of ‘demonetization’ and is preparing for another watershed moment when GST is implemented in 2017. We are well prepared to integrate all GST requirements and provisions into our business processes. It will be our endeavour to ensure that both, Indian dairy farmers and consumers reap the benefits of GST. We sincerely hope that our policy-makers will consider that keeping dairy products affordable will have a huge and positive impact on the health and nutrition of our nation and therefore eliminate the extra burden of taxation on dairy products.

The Government’s demonetization policy has had a positive impact on our business. It helped us encourage our farmer-members to open bank accounts and link these with dairy cooperatives so that cashless payments for milk can be transferred directly to their accounts. Rural India is home to more than two-thirds of the country’s population. Technology is a great enabler for financial inclusion, and the path to rural empowerment lies in digitalization.

We embarked on the journey of digitalizing rural India long before the demonetization initiative was announced by the Indian Government on 8th November 2016. The entire Amul value chain, which we fondly label as ‘cow to consumer’, functions with clock-work precision only because it was seamlessly integrated, end to end through information technology. Online electronic databases, farmer member-wise and animal-wise, are maintained in our system, which provide the foundation of all productivity enhancement programmes as well as scientific animal rearing and farm management programmes for our farmers. More than 26 lakh milch animals had already been tagged and electronically registered online on ‘amul.org’. As far back as the 1970’s, Amul had pioneered wireless rural connectivity by connecting village dairy cooperative societies with mobile veterinary vans through wireless radio communication technology. Four decades ago, in a trailblazing effort, Amul had collaborated with ISRO to establish transmission towers in selected rural areas to enable remote transmission of audio-visual training and awareness-building programmes for farmers.

The process of installing Automatic Milk Collection Systems (AMCS) in village dairy cooperative societies was pioneered by Amul years ago. This was an integral part of our digitalization drive for rural Gujarat. In fact, all AMCS units installed in village dairy cooperative societies have now been linked through a common online software application. This helps to further enhance transparency among producer members using digital technologies. Leveraging on this new technology, we can facilitate accurate and timely direct cashless payments to farmers, thus minimizing cash handling at the society level. As many as 4,500 Cooperative Societies, across 10 District-level Milk Cooperative Unions catering to about 7 lakh milk producers, have successfully implemented this application. More than 3 lakh SMS messages are being sent to farmers on a daily basis.

At Amul, even prior to the recent currency demonetization, cashless, electronic payments for milk procured to the tune of Rs. 450 crore per week were made to more than 18,000 village dairy cooperative societies of Gujarat. This amounted to cashless payments of Rs. 2 lakh to Rs. 3 lakh per week to each village dairy cooperative society. In fact, up to the Village Dairy Co-operative Societies (VDCS) level, almost all payments were already cashless in our system. Bank accounts of 10 lakh farmer-members were available with us. Demonetization did help to substantially accelerate the process, and since 8th November we have actively helped our farmer-members to open bank accounts and have linked an additional 13 lakh farmers’ bank accounts to our system. Now, milk payments are cashless and directly transferred into their bank accounts.

The drive towards digital and cashless payments, which received a huge boost thanks to Government of India’s demonetization initiative, has brought about significant benefits to our farmers in rural Gujarat. To begin with, it has brought in complete transparency in payment to milk producer members. Farmer-members are aware of the exact amount due to them and the rationale behind the same. Payments going directly into their bank accounts also helps inculcate the savings habit in them. Earlier, some part of cash received in hand may have been diverted towards needless expenditures. The need for an active bank account brings the large number of the Amul family farmer households directly into the formal banking network. This facilitates in availing direct benefits of other Government schemes and ultimately financial inclusion for them. Besides, access to formal banking network also protects them from exploitative tendencies of alternate unorganized lending mechanisms prevalent in rural areas. And finally, having a bank account with a bank balance and a recorded transaction history will also improve the credit rating of farmers, thereby enabling them to avail of bank loans.

While we have been actively driving the adoption of digital technology among our farmer-members in rural Gujarat, we have also been successfully leveraging on the use of digital and information technologies in every stage of our value-chain. All business functions and key business process of the Federation and its Member Unions have been seamlessly integrated through SAP, since 2011. Through forward integration of communication technology, we have been able to integrate almost all the Federation’s distributors into our information system.

While every transaction with our channel partners has always been cashless, we have been actively trying to encourage our customers to switch to online, cashless payments as well. To facilitate cashless payments at our Amulparlours, we have issued SBI Milk Smart Cards to customers in select cities and have also tied up with e-wallet operators.

Highly appreciated and recognized for creating shared value successfully, our business approach has always been to reconnect the company success with social progress. Amul’s core operating philosophy ‘value-for-many’ and ‘value for money’ truly embodies this sentiment. ‘Value-for-many’ reflects our commitment to our farmers to ensure them the most remunerative milk price as manifested in the fact that 80% to 85% of consumers’ rupee flows back to our farmers. ‘Value for money’ represents our commitment to millions of consumers in India to be assured of being provided the highest quality of milk and dairy products at the most reasonable price. We are able to achieve both these objectives simultaneously because our Amul Model connects 36 lakh farmers of rural Gujarat with 132 crore consumers across India, including 40 crore Indians living in Urban India. Since rural women have a major role to play in the Amul cooperative movement and urban mothers cherish Amul milk and milk products for their children and family, the Amul Model can be aptly described as the world’s largest mothers to mothers network. In rural Gujarat, every morning, over 36 lakh women farmers wake up before dawn just to supply fresh milk to their village cooperative society, a quantum of about 200 lakh litreseveryday. The milk is enjoyed by millions of families across India. If we take a closer look, it is a network of rural mothers offering milk to urban mothers across India. Our digitilization drive will therefore further empower Gujarat’s rural women and enable them to progress rapidly by swift adoption of digital technology.

Once rural India leapfrogs in development, fast-tracking its progress by leveraging effectively on digital technology, then as a nation, we will be able to successfully realize our true growth potential. This is the real objective behind all the efforts that we are putting in to take the benefits of digital revolution to our farmer-members.

We are proud to be the first Dairy Cooperative in India to issue the Commercial Paper, an unsecured money market instrument, for borrowings at competitive rate resulting into lower interest cost and ultimately better returns to farmers. We extend our thanks to Reserve Bank of India for granting us the permission for the same.

I now present to you, our Federation’s Annual Report and the Audited Accounts for the year 2016-2017.

REVIEW OFOPERATIONS

MILK PROCUREMENT

The total milk procurement by our member unions during the year 2016-17 averaged 181.7 lakh kilograms (18.17 million kg) per day, representing a growth of 4.0 per cent over 174.8 lakh kilograms (17.48 million kg) per day achieved during 2015-16. The highest procurement was recorded during February 2017 at 226 lakh kilograms (22.6 million kg) per day.

During the last seven years our milk procurement has witnessed a phenomenal increase of 96%. This enormous growth was a result of the high milk procurement price paid to our farmer-members which has increased by 106% in this period. This highly remunerative price has helped us retain the farmers’ interest in milk production. Better returns from dairying have motivated them to enhance their investments in increasing milk production. Our initiative in promoting the concept of commercial, scientific, cooperative dairy farming is also helping to attract the next generation of dairy farmers to remain in the business.

SALES

During the last seven years, our Federation’s sales registered a remarkable growth of 238%, which implies an impressive cumulative average growth rate (CAGR) of 19%. In line with this notable performance, this year, growth further increased by an impressive18% to reach Rs. 27,043 crore (Rs. 270.43 billion). Last year, our turnover was Rs. 22,972 crore (Rs. 229.72 billion). This year, we leveraged heavily on our technological capabilities and data analytics to enhance communication with our channel partners and expand our distribution reach. We also invested substantially in enhancing the retail-level visibility of our entire product range through systematic planning and implementation of the ‘shelf window display’ campaign in retail stores across India and also through ‘comprehensive in-shop branding’ for our major products.

Our superlative performance was led by Amul and Sagar Ghee in consumer packs, which together registered 39% value growth. Amul fresh Milk in pouches, which is the largest food brand in India, grew by 11% in value terms. We expanded our fresh products’ footprint by launching Amul Milk in Chandigarh city, several towns of Himachal Pradesh, North Bengal including Siliguri, towns of northern Karnataka and most recently in Jabalpur. Again, in the fresh products category, sales of Amul fresh Buttermilk grew by 23% and AmulDahi registered 33% growth thereby giving huge impetus to our overall sales.

In our effort to encourage youth to switch to healthier milk-based beverages, we have positioned Amul Buttermilk as ‘Desi refresher’ and AmulLassi as ‘Hamaraapna cold drink’. Our advertising campaigns based on these positioning themes have been immensely successful and in the recent summer season, our milk beverages range comprising Lassi, Buttermilk and Flavoured Milk is selling more than 10 million packs per day.

With massive expansion in Cheese manufacturing capacities, which actually came into effect towards the end of 2016, we expect a quantum growth in sales of Amul Cheese range in 2017-18. With huge investments in advertising and promotion, we plan to flood the market with Amul Cheese and dominate India’s cheese market in the coming years. Our flagship brand, Amul Butter, continues to be driven by product as well as packaging innovations. After the highly successful launch of Amul Garlic Butter and relaunch of Amul Unsalted Butter, we have now introduced a new innovation – Amul Chocolate Butter targets at children who love Amul butter as well as Amul chocolates. In terms of new packaging formats, we now have butter in plastic tubs in three pack sizes – 200g, 50g and 10g. This new packaging form offers immense convenience to consumers and ensures that Amul remains the most loved butter brand in India.

Sales of Amul Cream also increased by 19% in value terms. Our innovations in Amul chocolates have attracted consumer attention and our new range of chocolates is so popular that we have to undertake massive production capacity expansion to be able to service demand.

Distribution Network

Over the years GCMMF has continued its journey on the expansion path by expanding its distribution coverage across geographical areas, consumer segments, and age groups to ensure product availability to its consumers. The expansion drive further strengthens the existing very unique and robust distribution model designed to service consumers through four distribution highways of fresh, ambient, refrigerated, and frozen.

Continuing this journey we have opened new Zonal Offices as well as Branch Offices thereby bringing our team closer to the market. The new Zone at Lucknow will cater to the States of Uttar Pradesh, Bihar, and Jharkhand. New Branches have been opened at Bhagalpur, West Mumbai, and South Delhi in the current year. With this we now have 7 Zonal Offices and 60 Branch Offices having refrigerated, ambient and frozen warehouses, managing our distribution across India. Working ahead on our motive of being closer to the consumers and also to cash in on the added infrastructure availability, GCMMF has added 1,250 distributors during the year. We have also strengthened our rural reach with 181 Super-stockists covering 3,600 interior markets.

In the current year we have successfully implemented the Distributor Management System at almost all distributor locations across India. This system is bringing in the much needed last mile information availability on a continuous basis, further assisting complete control on our reach across markets. We have also leveraged on the training needs of our key channel partners viz. the distributors’ salesmen by designing and implementing a common objective training programme named “POSITIVE” across all branches in India. This has resulted in increasing the working efficiency of the field force in the market.

Information Technology Integration

We are glad to inform you that your Federation has successfully completed six years of operations on SAP ERP, which was successfully upgraded from version EHP 4 to EHP 7 as part of making our systems GST compliant. We wish to inform you that implementation of Amul DMS (Distribution Management System) is completed at all major distributor outlets and our frontline distributor salesmen are now booking retailers’ orders using the software application installed on their mobile phones.

Your Federation is effectively using e-DSR (daily sales report) and e-DQR (daily quality report) for reporting daily market activities and product quality testing data using a mobile-based software. Your Federation is also extensively using the web portal for reverse auction and e-procurement for cost-effective procurement of goods and services.

Exports

I am pleased to inform you that, during the year our exports have grown by more than 20% to reach Rs. 271 crore in 2016-17, and our exports in consumer pack have grown at a CAGR of more than 26% in the last five years. As you are all aware that the global dairy market had crashed since the last three years; in spite of that we have been able to export our milk powder in bulk packing at a considerable premium in niche markets.

Our operations in USA are also witnessing positive growth and we have been successful in starting the export of Ice-cream as well as Rasmalai.

Cooperative Development Programmes

The GCMMF family welcomes one more milk union namely, Porbandar District Co-operative Milk Producers’ Union Ltd. as ordinary member. GCMMF now has 18 ordinary members.

During the last 17 years our Member Unions are implementing Internal Consultant Development (ICD) for developing self-leadership among member producers. Till date, 10,356 Village Dairy Co-operative Societies (VDCS) have prepared their Mission Statements and Business Plans under VMS (Vision Mission Strategy). During the year, 554 Dudhutpadak-MandaliSanklitVikasAyojanKaryakram (DIVA) programmes have been conducted and 37,321 milk producers have prepared their action plan.

For the last 10 years, on every Independence Day, the Gujarat Dairy Cooperatives’ milk producers have been conducting a mass tree plantation drive. This has resulted in more than 619.7 lakh trees being planted, to date.

Strategic Productivity Enhancement:

GCMMF and Milk Unions have identified the gaps which are hindering the efforts of improving milk productivity and therefore have envisioned integrated intervention to achieve objective of higher milk productivity and production, titled Strategic Productivity Enhancement Programme.

Under Strategic PEP (Productivity Enhancement Programme), around 26.29 lakh animals have been registered in 2,327 villages. The Fertility Improvement Programme (FIP) is being successfully implemented in 3,022 selected villages covering 2.86 lakh animals. To create a good replacement stock and include scientific calf rearing practices by reducing Age at First Calving in animals, our Board has envisaged implementing the Strategic Calf Rearing Programme for our farmers. Activities of Strategic PEPs and FIPs are being monitored through a dedicated system on www.amul.org.inUnder the Entrepreneurship Development Programme the young and educated milk producers are being trained in the concept of commercial dairy farming and management. We have conducted 44 such programmes and trained 3,730 milk producers during the year.

Mastitis Prevention Programme:

Mastitis is the most common disease in dairy cattle due to which many milk-producer farmers are experiencing loss of income owing to the reduction in milk production of cattle and buffaloes. The GCMMF Board has approved the budget for the Mastitis Prevention Programme with an objective to identify the subclinical Mastitis and prevent its occurrence in cattle and buffaloes. This programme, besides helping in increasing milk producers’ income will also contribute to improve animal health and milk production.

DoodhSanjeevaniYojana (DSY)

In 2016-17, the Government of Gujarat has entrusted GCMMF and member unions to coordinate and facilitate distribution of Double Tonned Pasteurized Homogenized Fortified Flavoured Milk to Gujarat’s Anganwadi and school children as well as the State’s pregnant women and lactating mothers. Under DSY, GCMMF and member unions have implemented distribution of milk in 81 talukas of 20 districts of Gujarat and have covered around 23.80 lakh beneficiaries. Considering the success of the programme, the Gujarat Government also entrusted GCMMF and member unions for the distribution and supply of milk to the State’s six drought-affected districts.

The Road Ahead

Based on the estimated growth in market demand for Amul products and our ongoing marketing efforts, we anticipate at least 20% CAGR growth in GCMMF’s business during the next five years. We plan to enhance our overall milk processing capacity from the current level of 300 lakh litres per day to 380 lakh litres per day in the next three years. Your Federation aims to achieve a business turnover of Rs. 50,000 crore and become the largest FMCG organization in India by 2020-21. Our long-term aim is to establish ourselves as the largest dairy organization in the world. We are currently ranked as the thirteenth largest dairy organization globally.

We express our sincere thanks and gratitude to the Government of India and the Government of Gujarat who have always safeguarded the interests of Indian dairy farmers. We also thank the Government of India for the Dairy Processing infrastructure fund corpus announced in the Union Budget. We feel this should help in creating additional milk processing facilities in India to the tune of 500 lakh litres of milk per day, which means dairy farmers will get an additional income of Rs. 50,000 crore per annum. These funds can be used for building new dairy plants and renovating existing dairy factories.

Almost 80% of the farmers who are members of our dairy cooperative network are either small and marginal farmers or landless labourers. In view of this fact, we reiterate our sincere request to the Government that dairy should be treated at par with agriculture in all respects. Currently, the income that a farmer earns from dairying is not exempted from Income Tax as in the case of Agricultural income. We request our policy-makers to ensure that income from dairying should be treated in the same bracket as agricultural income and should therefore be exempted from tax. It has been our long-standing plea to the Government that for any Union or State government schemes, dairying should also be considered as agriculture.

With continuous support from our Government, our farmers will ensure that India continues to remain the largest milk producing nation in the world, safeguarding the food security of our nation, in one of the most critical dimensions.

Acknowledgements

We are grateful to the Government of India for the immense support received from various departments, specifically from the Department of Animal Husbandry and Dairy Development. We convey our special thanks to NCDC for providing valuable support to our village co-operative dairy societies. We are also thankful to the Government of Gujarat especially the Department of Animal Husbandry and Cooperation for their very supportive and facilitating role.

The National Dairy Development Board (NDDB) had played a role in our growth and development. We are extremely grateful to the Chairman, NDDB, for his continuous support to our organization. The National Cooperative Dairy Federation of India had been providing us with invaluable support in coordination with other agencies and organizations. We are very grateful to them.

The Institute of Rural Management, Anand (IRMA), as always, has contributed to the perspective building and professionalization of the management of the cooperative 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 our partners in success. We acknowledge their contributions and commit ourselves to continue and strengthen this fruitful alliance in all times to come.

The Indian Railways has played a crucial role in the growth of our dairy cooperatives since inception. We thank them for their continuous support.

We depend on the efficiency of our WC&F agents, 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 the Board of Directors

Jethabhai P. Patel

Chairman

43rd Annual General Body Meeting held on 15th June 2017

43^rdAnnual General Body Meeting held on 15^thJune 2017

REVIEW OFOPERATIONS

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