Milk Cooperatives and Market Power
Updated: Apr 25, 2020
By Anushka Gupta, Roli Bansal, Prisha Sood, Shruti Mittal and Prof. Amlan Das Gupta.
“It all began when milk became a symbol of protest” - amul.com
You might think, that the spectacular success of ‘Amul’ and the launch of the biggest dairy development initiative in the world, would be indicators of things to come in India on the dairy cooperative front. Unfortunately, that has not been the case. According to the latest annual
report of the National Dairy Development Board, almost half of the daily milk procurement by cooperatives in India still happens from Gujarat. While the Gujarat state cooperative takes in about 23 million litres of milk a day, the next biggest state cooperative in Karnataka is able to process only about 7 million. It is noteworthy that the difference is not attributable to geographic conditions or population. In terms of milk availability per capita, Gujarat is lower than Rajasthan and far below Punjab and Haryana; and if we look at sheer volume again, states like UP and Punjab will beat it. So it must be that the cooperative ‘Anand Dairy Cooperative’ (Anand) model has failed in almost all other parts of the country.
A little bit of history and economics can tell us the reason why. A cooperative is in essence a cartel, which is an artificial monopoly. With the ability to rope in milk from innumerable small dairy farmers and a centralized marketing mechanism, a cooperative society multiplies its market power. This allows it to set a higher price and a healthy profit margin to its subscribers. However, a cartel is difficult to sustain. Individual sellers will always have the incentive to undercut the cooperative price and capture a higher market share. If this happens, the cooperative breaks down. In fact, a cartel is a typical case of a Prisoner’s Dilemma game where cooperative outcome is never the equilibrium. As such, we expect exactly what we are seeing in the rest of India.
So what is it with Gujarat that has enabled it to avert the damning predictions of the Prisoner’s Dilemma game? This is the most interesting question. And the answer to that is contained in the revolutionary history of the formation of ‘Anand’. Anand was originally created out of a protest movement against exploitative pricing by milk dealers in 1946. At that time the Bombay Municipality had a deal with a company called ‘Polson’ to buy milk from Gujarat and market it in Bombay. However, the benefits of the lucrative urban market close at hand did not pass down to the actual producers of milk. Under the leadership of local politicians, that included Sardar Vallabhbhai Patel, the dairy farmers of Anand went on strike. They formed their own cooperative that fought for and won the rights to supply milk in Bombay. The solidarity born from that home-grown movement was enough to ward of any incentives for defection that the farmers might have had in the early stages. Of course, over the years that bond has been strengthened through profits, prosperity and socio-economic upliftment. Anand’s model has been a transformative experience for the people of that area.
Unlike Anand, all other states implemented the cooperative model as a state diktat. There is no reason per se that farmers would feel the loyalty to the cooperatives that Anand farmers do. If the Government is serious about implementing the cooperative model the focus has to be on building the loyal network of suppliers that we see in Anand. Without this, the “Anand model” is just any other milk business outfit and largely unappealing without the associated prospects of serious socio-economic transformation.
 NDDB (2019), Annual Report 2018–2019, at <https://www.nddb.coop/sites/default/files/NDDB-AR-2019-ENGLISH-24022020.pdf>
 Dixit, A., & Nalebuff, B. (2008), ‘Prisoners’ dilemma. The concise encyclopedia of economics’, pp. 15-16.
 Alderman, H., Mergos, G., & Slade, R (1987), ‘Cooperatives and the commercialization of milk production in India’, Working Papers on Commercialization of Agriculture and Nutrition, Washington, DC, International Food Policy Research Institute.