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Rural households and promise of dairy cooperatives

Published: Monday, Dec 28, 2015

FE-PRI EAU

Posted : 28 Dec, 2015 00:00:00

 

 

Rural households and promise of dairy cooperatives

Syed Mafiz Kamal and Muhammad Shafiullah

Dairy farming is bringing much needed income to rural households while empowering women in Bangladesh. Many of these women entrepreneurs are supplying milk to the market through cooperatives such as Milk Vita, BRAC Dairy and Pran Dairy. Their success stories are inspiring many others to take up this income-generating venture. Dairy farming has the potential to lift many rural households out of poverty.

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The process of formally procuring milk in Bangladesh is based on the cooperative model of Amul, India. Amul is responsible for the 1970s’ so called ‘White Revolution’ in India. It made India the largest producer of milk, and the largest food brand in India. Amul has an extensive history of catalyzing milk production and mobilization through the cooperative system. Amul was formed in 1946 in Anand, a township in western Indian state of Gujarat, as an economic protest to foster pro-poor socio-economic impact. The Amul brand is managed by the Gujarat Cooperative Milk Marketing Federation (GCMMF), a cooperative body owned by 3.5 million producers. It has an annual turnover of $3.4 billion. Amul’s success has since served as an inspiration for South Asia’s milk sector in general.

Amul’s supply chain, from production to procurement to consumer-delivery, is based on a three-tier model: the village level, the district level and the state level. 

The dairy development model is based on the principle of slashing the middlemen by linking the producers with the consumers. At the village level, local producers forming a dairy cooperative society commit to selling their milk. The milk is collected to at a designated collection centre in systemic and standardized way. The milk from the village level is bought by the district level union, which is owned by the village societies. The district unions also provide technical services and trainings, such as veterinary care, to milk producers. The district unions are furthermore federated at state level. The state level federation is responsible for marketing and distribution of the milk to the consumers. The co-op structure is formulated to maximize the profit and productivity of the farmers, while having a strong social empowerment mission. When the Amul co-op was initiated, it used to produce 247 liters, whereas today it produces 24 million liters of milk per day. Eighty five per cent of the co-op members are either smallholders or marginal farmers.

All South Asian countries share similar dairying tradition. Hence, the potential to formalize the traditional diary sector based on Amul model is promising. In the case of Bangladesh, the traditional informal and unorganized production accounts for 70 per cent of the dairy sector. Milk Vita was formed as a cooperative under the supervision of the government of Bangladesh in 1973 to set course for the formal dairy development. Milk Vita, being a public entity, still remains the largest dairy co-op in the country. Inspired by the success of India’s Amul venture, the Milk Vita firm pioneered the cooperative dairy model in Bangladesh. The initial organization was done at the village level, targeting the poor and landless, especially in the remote areas. The milk there then collected from different co-ops and processed, which ultimately is transferred to consumers across the country. Milk Vita also provides technical assistance to the producers. In 2010, the latest year for which data is available, Milk Vita comprised of 1300 village cooperatives with 126000 members.

The success of Milk Vita encouraged other milk cooperative ventures in Bangladesh. These include BRAC (Aarong) and Pran Dairy. BRAC Dairy was formed in 1998 to overcome the issue of low yield milking cows and farmers in rural areas unable to break even. In the early years, there was a characteristic lack of a permanent marketplace for milk trade in the rural areas. In fact, at times they found that there was hardly any demand or the demand was too erratic to be profitable for them. The first order of business was to establish both forward and backward linkages in terms of milk production. Having helped to increase production of milk, BRAC now needs to ensure market access for its farmers at a fair price. This is where Aarong Dairy fits in. The organization began buying the milk that the farmers could produce at very competitive prices. Because of Aarong Dairy’s presence, the local farmers could finally have guaranteed payments based on their production level and quality. Aarong Dairy thus removed the major headaches for the farmers such as where to store to the milk and how to transport the milk. BRAC (Aarong) Dairy, today, holds a sizable 22% of the formal dairy market in Bangladesh. BRAC Dairy’s capacity include one processing plant in Gazipur, 101 collection and chilling stations in 25 districts with 10 located in ultra-poor areas. The firm processes some 170,000 liters of milk daily procured from about 50,000 farmers of which almost two-thirds are women.

The third market leader in the dairy cooperative sector is Pran Dairy. Following in the footsteps of Milk Vita, Pran sought to increase the country’s milk output. The private sector’s foray into milk cooperatives was spearheaded by Pran. It has 123 chilling centers which collects 150,000 liters of milk every day. A project by Pran Dairy in association with International Finance Corporation (IFC) had transformative impact. The project is expected to set up 60 dairy hubs in a span of 10 years which will enable Pran Dairy with 90,000 farmers from 17,000 in 2011. The hubs are meant to provide veterinary care, logistical support and associated training to the farmers. In 2014, Pran Dairy launched a collaborative project with international development form Land O’ Lakes to jointly invest $6.0 million on creating new opportunities for dairy farmers in Bangladesh. The project has a strong social motif. It will connect 60 villages through 40 milk collection centers, and link 7,000 new farmers to the formal milk market. Pran Dairy contribution to the economy was duly noted when it received the highest value added tax (VAT) payer’s award in fiscal year (FY) 2013-14.

Bangladesh’s dairy sector has experienced significant growth and development in the last decade or two. The first cooperative, Milk Vita, attempted to streamline Bangladesh’s hitherto informal dairy sector. Though the cooperative model was based on India’s Amul, none of the Bangladeshi cooperatives have managed to achieve its level of efficiency and commercial success achieved by Amul. Nevertheless, Bangladesh dairy farming has contributed to remarkable progress in improving food security and reducing malnutrition.

Despite this progress, the country’s nutritional standards are still low owing to low meat and dairy consumption. It’s dairy cooperative sector has the potential to further diversify the country food basket. As such, is imperative that policy makers support this sector to improve the country’s nutritional intake. The inefficiencies in the sector such as low-yield variety cows and poor market infrastructure need to be addressed and streamlined so that it stays competitive by international and regional standards. Only then can the Bangladeshi milk cooperative replicate the ‘White Revolution’ in India spurred by Amul.

[This article was jointly written by Syed Mafiz Kamal, a Senior Research Assistant, and Dr. Muhammad Shafiullah, a Senior Economist, at Policy Research Institute (PRI) of Bangladesh. They can be reached at skamal@pri-bd.org and mshafiullah@pri-bd.org respectively]

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