Chairman's Speech: 27th Annual Report 2000-2001

Report of the Board of Directors

Adopted at their meeting held on 7th June, 2001 for presentation at the 27th Annual General Board Meeting to be held on 26 June, 2001

Madam and Gentlemen,

Nature always finds a way to test the will and resilience of those from whom much is expected. How else can one begin to explain the dreadful tragedy that struck Gujarat this Republic Day. In a few fateful moments, that devastating earthquake cost thousands of our fellow citizens their lives, their worldly possession, and their near and dear.

Even as their world shattered around them, our brethren displayed a remarkable spirit of cooperation and determination, launching one of the biggest relief and rescue operations ever conducted in our country. It is this very same spirit that, half a century ago, enabled us to start India's most successful cooperative movement - Amul. It is that same spirit that, even as we bow our heads in the memory of those who lost their lives, leads us to express our solidarity with those families, who must rebuild their lives from scratch.

It is with some pride that I report to you that, from the beginning, your Federation has taken a lead role in managing relief efforts in the disaster-stricken area. With the assistance of the National Dairy Development Board and Government of Gujarat, we distributed milk and milk products to quake victims in the affected districts. We also provided a large quantity of milk powder to the Government for distribution. I am particularly proud to report that our Federation employees generously contributed to the relief efforts in Kutch and the adjoining areas.

Once the immediate relief efforts were completed, our focus shifted to rehabilitating those left homeless and penniless. The Amul Relief Trust was established to spearhead this rehabilitation work. A sum of Rs. 5 Crores has been set aside to bring a ray of hope to the lives of the quake victims. This fund will be used to rebuild houses, schools and civic amenities in the worst affected areas. This is the humble effort of our two million members to support our brothers and sisters in their hour of need.

The horrific Republic Day tragedy has come as an eye-opener for all of us. Beneath the veil of mass-destruction, Mother Nature has taught us an important lesson: our environment cannot be taken for granted. In a matter of seconds the world can change beyond recognition; only those who prepare themselves to face the future will survive.

During the last fifty-five years we have struggled hard to win our freedom from economic exploitation, using cooperative dairying as our weapon. We have created a formidable business entity, one that has overcome the toughest challenges, emerging as a recognised player in the international dairy industry.

However, our battles are far from over: with the "new economic policies" initiated in 1991, market realities are very different. The 'rules of the game' for the Indian dairy industry have changed. Unless we redefine our paradigms to meet the changing times, we risk being left behind.

Since 1991, anybody and everybody has been free to enter the dairy industry and to reap benefit from the markets that our federation created and nurtured with our sweat and blood. Multinationals, backed by their surplus capital, are seeking a hefty share of our milk and milk products market. At the same time, regional private companies have been able to penetrate markets on the strength of aggressive pricing made possible by cavalier treatment of taxation laws and quality standards.

More recently, Government has even allowed free import of dairy products, leaving the door open to subsidized imports from the advanced dairying nations. The dynamics of the Indian dairy industry are now increasingly linked to the global dairy industry.

If we are to survive, it is no longer sufficient for us to be the best in the country. We must be the best in the world.

The key to retaining our competitive advantage lies in keeping focused on the basic business principles:

• Be Customer-Driven
• Adapt quickly to the changing environment.
• Anticipate change and act today to meet tomorrow's challenges.

Your Federation has invested substantially over the last few years in improving the quality of its products and services, keeping in mind the emerging challenges of globalization. In recognition of its achievements in Quality Management Initiatives, your Federation has been awarded the top most national award in the field - The Rajiv Gandhi National Quality Award, for the year 1999-2000 by the Government Of India. This only reinforces the belief that institutions like yours which is created by farmers and have been managed by professionals, can not only deliver but also achieve results surpassing private and public sector corporations.

Our core business is marketing branded food products to household consumers. Our success has been grounded in two strengths :-

• Our distribution network, serving more than five lac retail outlets.
• Our superior product quality - 'Value for money'

The key to maintaining these two competitive advantages rests on our ability to attract and retain the very best manpower. In this age of intensive competition, only dedicated and committed professionals can successfully manage our business.

As leaders we must understand and appreciate that values are changing. We must allow our professionals the freedom to operate, ensuring that we hold them accountable for complying with policies and achieving results.

Our greatest strength is the spirit of the cooperative movement and adherence to the fundamental principles of cooperation. It is these that will see us through the toughest of times, just as they have, time and again, when we faced earlier challenges.

I now present to you, your Federation's Annual Report and the Audited Accounts for the year 2000-2001.

Review of Operations

Milk Procurement

In spite of drought conditions in some of our major milksheds, total procurement by our Member Unions reached an average of 45.76 lac kilograms per day, as compared to 44.68 lac Kilograms per day, a 2.4 percent increase over 1999-2000. Peak procurement touched a high of 55.95 lac kilograms in a day.

Sales

During the year, your Federation's sales registered a growth of 2 per cent to reach at Rs. 2,258.80 crore including consignment sales of Rs. 281.71 crore. In addition your Federation co-ordinated Rs.39.17 crore in product sales to the Defence services. Dairy products turnover registered a growth of 3.0 per cent over the previous year.

This year, Amul ice cream achieved record sales, with Rupee turnover growing by 33 per cent. Sale of Amul Milk in pouches increased by 12 per cent in value terms. The introduction of UHT packed Amul Milk produced a very encouraging response. Amul and Sagar brand pure ghee sales increased by 19 per cent over the previous year. Despite intense competition and market recession, sales of Amul Butter and milk powders remained steady. Amul Cheese range sales value increased by six per cent with similar gains in market share. This is particularly pleasing as it demonstrates our ability to resist intense MNC competition. Amul Chocolates and Nutramul sales values grew by seven and nine percent respectively. New products like Paneer, Mithaimate sweetened condensed milk and fresh curd demonstrated their potential to become dominant brands in the coming few years.

Dhara Oil

Once again the year witnessed large-scale import of edible oils, adversely affecting the interests of our farmer producers. Imports dampened domestic oilseed prices forcing our farmers to shift from oilseed production. Despite these unstable conditions, Dhara sales maintained the previous year's volume, confirming consumer faith in its purity and value for money. With the recent increase in duty on imported oil, the domestic edible oil market scenario is showing an upward trend and we expect that Dhara as a market leader, will benefit with significant volume growth during the coming year.

At the same time as we are encouraged by recent steps, we would like to draw Government's attention to the importance of addressing aspects of the national Agricultural policy. It is paradoxical that while liberal imports of edible oils adversely affected domestic oilseeds production resulting in large outflows of foreign exchange, price supports for cereal production have resulted in accumulation of vast surpluses, forcing the Government to export wheat and rice at subsidized prices. The need of the day is a sound agricultural policy framework that reflects - but doesn't cave in to - international trade regimes.

Distribution Network

Over recent years, your Federation has successfully introduced new product lines. This year, in order to leverage our distribution network strengths, to optimize market supervision expenditures, to achieve increasing efficiency while keeping the distribution infrastructure lean, focused and productive, the Federation amalgamated its different distribution networks. Today, we operate an efficient distribution infrastructure consisting of 46 sales offices, catering to 3,000 distributors and five lac retailers. Almost every Federation stockist has visited Anand to participate in a unique programme called 'Amul Yatra'. During this programme, stockists are exposed to the Federation Philosophy, the culture of Cooperation, as well as operational Systems and Processes. The Federation has also invited distributor's salesmen from all over the country to Anand for a training program focused on the Federation's philosophy and developing their selling skills.

Exports

The Federation's export turnover registered a 93 percent increase, over the previous year. Apart from our regular exports of branded, consumer-packed dairy products to the US, Persian Gulf and Far East markets, we exported large quantities of skim and full cream milk powder. Nutramul, Amulya, Mithaimate and Amul paneer were launched in the Gulf countries. New markets like Madagascar, Russia and Saudi Arabia are being developed, building a strong base for the future.

I am proud to report that, for the seventh consecutive year, your Federation has won the APEDA award for excellence in Exports. I am equally proud to inform you that all our dairy plants have now received ISO 9000 and HACCP certification, helping us to obtain the required Export Inspection Agency plant certification for dairy products.

Total Quality Management:

During the last six years, GCMMF has carried out a comprehensive change process to ensure we are always one step ahead.

We have firmly established Hoshin Kanri or Policy Deployment Workshops as a medium of communicating our plans in a way that involves all our employees. In our Mother Dairy Gandhinagar plant, Hoshin Kanri has helped ensure that each employee is aware of the Federation's short, medium and long term plans. Many of our Unions have introduced Apex Steering Council (ASC) meetings in which all departmental and divisional heads review, discuss and address key organizational issues. At this forum, business progress and TQM-related approaches like kaizen and Small Group Activity are shared.

For our distributors, the TQM movement is evident in Amul Quality Circles. We have trained our entire field sales force in the required Strategic Facilitation skills equipping them with a sharper business perspective, which takes into account the complexities of changing market dynamics.

In order to take stock of the way we function within a broader industry perspective, we invited an eminent business school professor to audit and benchmark our operations. This Performance Audit will help us to know where we stand in the industry and to take any necessary corrective steps, making us more competitive in the FMCG environment.

One dimension of the Performance Audit involved feedback from all our employees on their current work situation, measuring areas of pain and satisfaction. This Organizational Climate Survey was the second conducted in five years and allowed comparison of the scores. Based on the findings - which were shared at Hoshin Kanri meetings - areas with low scores were identified. Using Small Group Activity principles, teams were formed to develop creative solutions to these problems within a given time frame.

During the year we called the first All-India meeting of House Keeping Co-ordinators to review housekeeping progress across the country. Following the Japanese '5S' principle, the movement had been initiated in 1995 to improve the quality of the work place. At this meeting it was decided to take housekeeping to our distributors, leading to higher hygiene standards at all GCMMF distributor warehouses.

Given the pace of globalization and the efforts we have undertaken to meet its challenges, we felt that the each position's roles and responsibilities should be better defined along with the required knowledge, skills and attitudes. With this in mind, we invited an expert consulting group to support "Competency Building for GCMMF".

Information Systems Management:

Your federation has now integrated it's country-wide operations through successful implementation of the "Enterprise-wide Integrated Application System". We believe that introduction of similar integrated ERP systems at our Member Unions will help us ensure that the IT revolution serves our members better. Your Federation is among the Top 100 IT Users in the country. Currently, there are more than 3,000 computers installed in our village societies, which support the Automated Milk Collection System. Our goal is to install computers in all our village societies and to integrate them with their respective unions. On the market side, our distributors have responded enthusiastically to our suggestion of computerizing their operations and getting email connectivity for better communication with our sales offices. Our distributors can now place their orders on our internet website www.Amulb2b.com. We continue to receive a good consumer response to our website www.Amul.com which is noted for its distinct features like cyberstore for ice-cream and other milk products, cricket rankings and the recently launched e-greetings site.

Co-Operative Development Programme

Our Co-operative Development Program aims at building greater member understanding and loyalty, while promoting the highest level of member participation in their co-operative.

During the year 2000-2001, as planned, our Member Unions continued to encourage increased participation of women milk producers in the dairy cooperative societies. During the last five years, our Member Unions have organized 67 women leadership development programmes and trained 1,498 women milk producers, building their skills and leadership qualities.

During the year, the benefits of Cooperative Development Programme were extended to 1,136 village dairy cooperative societies with 89,746 women, 70,462 men and 8,851 DCS Management Committee Members. During the year 6,802 women milk producers from the various milk unions also participated in the Prajapita Brahmakumaris' Self Managing Leadership Programme at Mount Abu.

To economize milk production and to optimize the resources available with the milk producers, Member Unions have also developed a training programme for their members and women milk producers.

Progress of Dairy Co-Operative Organisations

During the year, your Member Unions continued their infrastructure investments, upgrading and strengthening the dairy co-operative structure. The number of Dairy Cooperative Societies increased 2.5 percent from 10,411 to 10,675 during the year; membership grew 1.9 percent from 21.18 lacs to 21.59 lacs; total milk processing capacity now stands at 60.70 LLPD.

To achieve our goals of transforming each Village Dairy Cooperative into a self-reliant, growing business organisation and building professionalism in each of the operations, the Federation has introduced a Change Management Process. Union field staff are encouraged and equipped to become consultants, rather than Supervisors; facilitators rather than decision-makers; trainers rather than doers.

We envision this field extension force serving as your own professional consultants for Village Dairy Cooperative Society management, encouraging them to plan and to undertake quality assurance, productivity enhancement and member education programmes. Our structure is built from the grass roots; it is only when each DCS becomes a self-reliant, growing business that we can be fully confident of our collective future.

During the year 7,226 Village Management Committees and Core Groups were trained in Society Cleanliness, a first step towards quality assurance. An Artificial Insemination Services training module has been introduced in 833 Dairy Cooperative Societies with the goal of improving animal productivity.

The key to the future of our dairy cooperatives lies in transformation of managing committees, enabling MC members to play a planning, policy and resource mobilization role while drawing members and employees into the planning process. To achieve this, a Vision-Mission-Strategy training module was developed during the year. This module will evolve through a large group interactive process engaging the participation of members, management committee members and the DCS staff. Together, they will set their Mission and plan their strategy for the future.

Mother Dairy, Gandhinagar

The Gandhinagar Mother Dairy, India's first environmental dairy plant, owes its existence to 2.1 million farmers of Gujarat who had the vision to set up a one million litre ultra modern dairy to overcome uncertainties of cyclical fluctuation and future flush season limitations.

Since its inauguration in September 1994, the Mother Dairy has successfully achieved its purpose. During this short six-year span, Mother dairy has achieved its rated capacity during peak flush season and also maintained a stable performance during the rest of the year. In keeping with the changing times, the Mother Dairy has adopted several World class quality management systems such as TQM(1996), ISO 9002 (2000), Food Safety Management - HACCP 9000(2000), ISO 14001(2001), Total Productive Maintenance (2000). This combination of practices is aimed at improving overall plant efficiency, minimising wastage and safeguarding the interests of both consumers and stakeholders.

Prognosis for the Future

It does not require a crystal ball to sense the perils arising from the dairy policies of successive Governments. In the context of the Indian dairy industry, 'liberalization' is clearly a case of 'misplaced priorities'. To comprehend this, one has to first understand clearly the evolution and structure of the domestic dairy sector.

India's dairy industry exists because of millions of small and marginal farmers for whom dairying has been a means of deliverance from economic exploitation. The cooperative movement has helped to transform rural India's economic and social landscapes. Fifty years ago, self-sufficiency in milk and milk-products was a distant dream. The per-capita availability of milk was woefully insufficient to meet the nation's nutritional needs. It was the spirit and practice of cooperation, inspired by leaders of our freedom movement, which enabled India to become the world's first ranked milk producing nation. This achievement is based on the blood, sweat and sacrifice of the poorest of the poor - the Indian farmer.

Unlike other industries, which thrive on private capital and where macro-economic policies impact wealthy industrialists, rich executives and urban-workers who are relatively well-off, the impact of Government policy with respect to dairy industry is felt directly by poor farmers.

Cooperative dairying has done more for the emancipation of women-folk in rural India, than centuries of social reforms. The 'rural woman' has managed to achieve some measure of economic independence, by selling her cow or buffalo milk to the Village dairy cooperative society. Her future too is threatened by an international trade regime that favours the haves over the have nots.

Should the trade rules proposed by the advanced dairy nations prevail, the adverse impact on India's dairy industry will result in new distortions in the distribution of income and wealth. Frustration of the attempts of our rural poor to achieve some small measure of equity can only result in social and political unrest.

It is ironic that although successive Governments have been quick to embrace 'Liberalization' - clearing the field for business houses and multinationals - they have still not amended the cooperative law - a law that was and is an artifact of the colonial regime. Shackled by an archaic legal framework, cooperatives have pleaded repeatedly with the Central and State Governments to initiate reforms. These reforms are essential to establishing a level-playing field, enabling cooperatives to compete effectively in the market.

It is a well-known fact that even six years after formalization of the 'Agreement on Agriculture', under the aegis of the WTO, distortions in global dairy products trade still have not been removed. The very objective of the WTO - 'to promote fair and market-oriented International Trade' - has been defeated by the massive export subsidies and domestic production incentives given by developed countries to their milk producers. The natural consequence of the combination of high export subsidies and stagnant demand in their own market, is dumping of excess production, in the markets of developing countries.

While domestic subsidies in the EU and US remain at very high levels, our dairy industry enjoys no domestic support or export subsidies. Since the implementation of the 'Agreement on Agriculture' has not been very effective and the dairy products account for one of the largest expenditures on export subsidies in EU and US, the global dairy trade remains distorted. It is clear that the advanced dairying nations seek to maximize returns to their dairy farmers while insulating them from the global market.

As compared with those of many developed nations, India's bound rates for dairy products remain relatively low. This is particularly true of such products as butter oil, milk powders, butter, cheese and baby foods, all of which are critical for our dairy industry. As compared with their European and North American counterparts, our milk producers enjoy a much lower level of protection. It is these same countries that have placed pressure on our Government to provide free access to our markets, citing WTO norms on market access while ignoring their own domestic and export subsidies. Their policy is to serve their own interests; it must be our Government's policy to do likewise.

In the recently-announced EXIM policy, Government has lifted quantitative restrictions on import of all dairy products. This will only facilitate dumping of heavily subsidized dairy products into our markets, leading to depression of milk-product prices within India. It has been found that many of these packed and branded imported products fall short of Indian quality and packaging standards and legal requirements. We have brought to our Government's notice the risks to our dairy industry, posed by unrestricted subsidized imports of sub-standard dairy products.

Students of history will observe striking parallels with the 18th and 19th centuries, when an exploitative colonial regime systematically demolished our indigenous textile industry, leading to large-scale poverty. Our policy-makers will do well to remember that those who do not learn the lessons of history, are condemned to repeat them.

Some analysts argue that the Indian Dairy Industry will benefit from current policies since our cost-efficient products will have access to lucrative markets, abroad. Unfortunately this is far from the ground reality as the advanced dairying nations have conspired to impose a variety of non-tariff barriers to protect their own industry. The adoption of stringent sanitary and phytosanitary standards is little less than a barrier to our entry into world-trade. The developed countries believe that the socio-economic conditions surrounding our milk production systems, will never allow us to meet the required standards, thus preventing our entry into their markets. The irony is that it is Europe - not India - which is now ravaged by "Mad Cow Disease" and FMD.

With the removal of quantitative restrictions, only swift imposition of high rates of tariffs and erection of non-tariff barriers, can protect the futures of millions of marginal farmers, for whom income from dairy products has meant the road to a better life. Specific product categories such as milk powders and butter-oil, can be classified as critical for the economy of our nation. Our Government should explore possibility of restricting the import of these categories, using WTO-compatible mechanisms. Non-compliance with WTO export subsidy and domestic support norms by the advanced dairying nations may be cited as justification. At the same time, our dairy industry should step up efforts to raise quality, on the one hand, and to enter into alliances with other major dairy nations of the South, on the other.

On the domestic front, the Union and State Governments should immediately initiate legislative reforms to un-shackle cooperative organizations, enabling us to compete effectively with other organizations, on a level playing field.

These favorable policy initiatives will serve to strengthen the backbone of dairy development within the country and ensure self-sufficiency, in one of the most critical areas of our economy.

Acknowledgements

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

We are thankful to the National Co-operative Dairy Federation of India for their support during the year.

The National Dairy Development Board, with its Operation Flood Programme, has played a shining role in our growth and development, in more ways than one. We thank them.

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 hope this fruitful alliance will continue and strengthen 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 their elected leaders and officers for their guidance, support and co-operation.

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