How an Indian farmers’ dairy co-op outpaced global giants
Amul’s business model involves more than 18,000 village co-operative societies and over 3.6mn farmers
https://www.ft.com/content/d697cd57-e091-4d16-8cc6-787b8bb2e221
SUMMARY :
This article outlines the business model behind the most successful dairy company in India named “Amul”. It highlights how Amul has held a strong foothold in the dairy market by designing a strong supply chain which benefits all of its stakeholders, at the same time satisfying its producers with proper benefits and work policies. “The co-operative model has propelled it to a 75 per cent market share of the country’s milk market and helped India become the world’s largest milk producer — contributing 25 per cent of global production”. The models created by the company values the farmers by allowing them to control the production, processing and marketing. The company assures farmers that their product will be used up, this cannot be promised by private buyers. The Indian dairy system has high barriers of entry for foreign entry companies. The country imposed 30-60% duties on foreign dairy products since “India does not need dairy from outside”. The tariff walls which have been strongly instilled since after independence work hard to protect the agri-sectors of the country. Since the founding of Amul in 1946, it initially gave shelter to farmers from intermediaries working for the Polson Dairy monopoly amid Britain’s colonial dominance. It has since created business models which allow farmers to be in charge of procurement, production and marketing. This model was exported into other states which helped to uphold a co-operative union in the dairy sector. “Today, the industry provides a livelihood to more than 80mn households and in 2023-24 it generated output of 239mn tonnes”. Another reason for Amul’s long running success is due its excellent advertisement which has stayed the same for decades. This provides a feeling of nostalgia, and familiarity for the Indian generation, young and old. All in all, Amul is an excellent company which yielded its tools properly and gave proper attention to all its stakeholders and employees to create an impenetrable business.
Raising questions :
Even though amul is co-op*, it may develop monopolistic tendencies due its large share in the market. This is of course extremely demeritious for new industries and it might exploit prices in the future. It can also bring about unfair power dynamics. Even though the co-op model is extremely successful and mostly beneficial, how does it fare in the face of climate change, water conservation and urbanisation ? Does the model also take into account the waste disposal methods and protection of animals ?
Finally, do the high tariffs that are placed on foreign diary products also contribute to amul’s success ? Moreover, the tariff of 60% is also extremely high and can be viewed as unfair to the importers.
Nidhi’s world connection 🌐
Recently, we have been learning about free trade and state protectionism in my economics class as a part of international economics. In this case, the diary market/Amul is offered state protectionism. Trade protectionism basically means intervention done by the government in international trade by imposing trade barriers such as tariffs, quotas and duties which intend to limit the quantity of imports and protect the domestic economy from foreign competition. The main disadvantage of trade protection is it could increase corruption such as illegal smuggling and bribery. Moreover, it could lead to trade wars and retaliation, other countries could also place high trade barriers in response to India’s high trade barriers. In this case, the dairy sector has done well by withholding their co-operations and models with foreign competitors. Of course, without free trade the country misses out on flow of new technology, greater choice for consumers, and the ability to acquire foreign exchange.
