How Amul swung the great Indian milk run9 min read . Updated: 14 Jul 2020, 08:13 AM IST
- The farmer-owned dairy cooperative is a case study in seamlessly maintaining supply chains during a pandemic
- While many businesses have struggled to maintain their supply lines, Amul is likely to gain market share in 2020-21. Managing director R.S. Sodhi expects an enviable 15-16% revenue growth
NEW DELHI : Like millions of householders in India, Devender Sodhi, too, was glued to her television late evening on 24 March. India’s Prime Minister Narendra Modi was expected to unveil a covid-19 crisis management plan. Barely six minutes into his speech, Modi announced a stringent 21-day lockdown to control the spread of the novel coronavirus.
No one will be allowed to move out of their homes from midnight, the Prime Minister proclaimed. Panicky households rushed to grocery stores to stock up on essentials. Twenty-two minutes into his speech, Modi said essential services would be exempted from the lockdown, but many did not wait that long.
Sodhi alerted her husband immediately after the speech. She wanted to stock up on milk, curd, butter and cottage cheese. The husband took a brisk seven-minute walk to reach the nearest milk parlour, but by then the shelves were nearly empty. He picked up whatever little was left: two small packs of curd and a pouch of butter milk.
Families across India went through a similar situation that night. The only difference is, the Sodhis are no ordinary household. The husband, Rupinder Singh Sodhi, happens to be the managing director of Amul, a popular household brand and India’s largest dairy company with an annual turnover of ₹52,000 crore.
On his way back, R.S. Sodhi thought, “If my own family is panicking what others must be going through." On reaching home, he quickly put out a video—shot by his wife on a mobile phone—assuring households that milk supplies will be normal. Being an essential food item, dairy products are exempted from the lockdown.
Around the time Sodhi recorded the video message which was sent out to news channels and social media, a crowd was gathering outside a warehouse more than 3,000km away. For the residents of Lunglei, a small hill town in north-eastern India’s Mizoram state, 9pm is well past midnight; shops usually down their shutters by six in the evening, but this wasn’t any other day.
“There was a winding queue outside our warehouse and we had no choice but to do retail sales," said Jennyfar Hrahshel, a distributor for Amul and other consumer products from the town. Her team worked late into the night. To Hrahshel’s surprise, there were no disruptions the next morning. The milk truck arrived on time.
Over the next three months she fulfilled the rising demand for milk as household consumption shot up. Demand for the iconic Amul butter and products like cheese nearly doubled, but there were no shortages.
India enforced a stringent lockdown between 25 March and 7 June but there were no instances of scarcity of dairy products or consumers being overcharged. In comparison, essential perishables like fruits and vegetables witnessed repeated fluctuations in prices and availability.
The lockdown was a testimony to how legacy dairy cooperatives saved the day for the Indian consumer. Presence of pan-India brands like Amul and others, such as Nandini in Karnataka, Aavin in Tamil Nadu or Verka in Punjab, meant steady supplies at regular prices.
Farmer members of these dairy cooperatives were also largely protected—unlike vegetable growers they did not have to dump their produce and received a fair price which is close to 80% of the consumer rupee. Compare that with, say, tomatoes, which urban consumers purchased at ₹50 a kg in the early days of the lockdown while farmers scrambled to get a tenth of the retail price. Even dairy farmers in states like Uttar Pradesh and Maharashtra, where the cooperative network is weak, had to sell milk at a pittance, at rates of less than ₹20 a litre.
“The pandemic proved the inherent strengths of the cooperative dairy industry and the resilient supply chain built by brands like Amul which was later replicated across states (beginning 1970s)," said Harekrishna Misra, professor at the Institute of Rural Management Anand.
According to Misra, the Amul model was a social innovation built on trust and a disciplined supply chain. “Pandemic or no pandemic, it has never reneged on the promise of a stable price to both consumers and farmers despite milk being a highly perishable product."
Navigating a lockdown
India announced a total lockdown beginning 25 March but Amul was already geared up to prevent any disruptions to what Sodhi dubs its C2C (cow to consumer) and B2C (buffalo to consumer) supply chain.
That chain is a mammoth one. The Gujarat Cooperative Milk Marketing Federation or GCMMF, which sells its products under the Amul brand, is owned by 3.6 million farmers. Of these, around 2.6 million farmers bring their milk twice daily to 18,600 village societies from where chilled milk is transported to district milk unions for processing into packaged milk and value-added products. The products then reach over a billion consumers daily via 10,000 distributors and a million retailers.
“More than a week before the lockdown was announced, we began preparations by intensively planning with supply chain partners," said Sodhi. Social distancing norms were introduced in village societies beginning 17 March along with new sanitization protocols.
Soon after the lockdown was in place, Amul announced cash incentives for dairy plant workers, drivers, sales executives, distributors and retailers. While casual workers received between ₹100 to ₹125 extra cash support for working during a pandemic, distributors got an extra 35 paisa incentive per litre of milk. Food and stay arrangements were made for workers inside dairy plants to avert any labour shortages.
Simultaneously, the company reached out to the Union home ministry and state animal husbandry departments to arrange passes for its workers and ensure that empty trucks were allowed to return (after delivering milk products).
To ensure uninterrupted supply of packaging materials, it engaged with district collectors where packaging factories were located. Amul even arranged for cattle feed to be transported from states like Punjab and Haryana for its farmers in Gujarat. Close to 45% of its products were moved via freight trains, which cut down transit time.
During a half-an-hour conversation over the phone, Vijay Shete, the head of Amul’s Taloja plant in Mumbai, repeatedly used the phrase “take care", while explaining the most challenging part of the lockdown—assuaging the fears of casual workers.
On 22 March, three days before the lockdown was announced, when worried labourers refused to work at the plant, Shete and his staff had to work till 3am. It was an early warning. “We started taking extra care of our workers, arranging for their food and stay plus cash incentives. From warm water for drinking to Ayurvedic medicines (for improving immunity), we did everything we could," Shete said.
Shete takes pride in the fact that not a single case of infection was reported among plant workers. And not a single litre of milk was wasted. The plant could seamlessly handle over 500,000 litres of milk it received daily.
A pandemic boost
Rating agency Crisil estimates that revenue growth in the Indian dairy sector will be flat during 2020-21, compared to a 10% compound annual growth rate (CAGR) over the past decade due to weak sales of value-added products like flavoured milk, cheese and yogurt, which are more profitable than liquid milk. The closure of hotels and restaurants, which account for 20% revenues of the organized dairy sector, coupled with negligible consumption of products like ice-creams could reduce operating profitability by 50-75 basis points, Crisil said.
Amul, however, is likely to buck this trend. As unorganized trade and small dairies withdrew from milk procurement, Amul received 15-17% more milk from farmers. Demand for Amul’s liquid packaged milk went up by 5-7% compared to pre-covid times as households chose a trusted brand over loose milk.
Demand for cheese and paneer is at least 30% more despite closure of hotels and restaurants, while butter and ghee sales are up by 10-20%. Demand for ice creams nosedived during the lockdown but Amul was quick to divert its distribution network for ice creams to other product segments.
“The consumer’s trust in Amul and uninterrupted deliveries helped us to grow during this period. We managed to put ₹12,000 crore cash in the hands of the dairy farmers who supplied raw milk to us," said Sodhi. The result: while many businesses struggled during the pandemic to maintain its supply lines and product sales, Amul is likely to gain market share. In 2020-21, Sodhi is expecting an enviable 15-16% revenue growth, only marginally lower than the 17% CAGR seen in the past years.
“The advantage of the Amul cooperative model is that profits are not a business target. They never turn a farmer away and the primary objective is to deliver products at the lowest possible price to the consumer," said Sunil Alagh, former CEO of Britannia Industries.
“It has done a brilliant job (during the lockdown) drawing on its work culture, image and the massive trust it enjoys among consumers. But it could have used this opportunity to enter in a bigger way into adjacent categories like biscuits," he added.
Lessons from history
The brand wasn’t built in a day, of course. Way back in 1957, the Kaira milk union in Gujarat’s Anand, under the leadership of its legendary general manager Verghese Kurien, chose the name Amul, derived from the Sanskrit word amulya, which means priceless. Even before India got its independence, farmers of the Kaira union were battling a mighty private firm, Polson Dairy, which deliberately kept milk prices low, forcing them to organize under a cooperative.
“As the chief executive of their cooperative my main goal became to ensure the best deal for the farmers... without exploiting the consumer," wrote Kurien in his autobiography I Too Had a Dream. “Very soon I was convinced that one of our key areas of concentration would have to be marketing of these products... there could have been no production of anything unless it was marketed at a price advantageous to those who produced it, which provided them with an incentive to produce more and more."
The result was one of the longest-running campaigns in Indian advertising history: the Amul mascot, an adorable little girl wearing a polka-dotted skirt, who appeared on packs of butter with the punchline “Utterly, Butterly, Delicious."
The roaring success of the Amul brand was what prompted the then prime minister Lal Bahadur Shastri to request Kurien to help replicate the Amul model across the country. In the summer of 1970, the official launch of “the billion litre idea" also known as Operation Flood eventually catapulted India to become the largest producer of milk in the world. It is largely these farmer-owned dairy cooperatives which prevented any supply disruption during the ongoing pandemic.
And not just that—the recently released Kantar’s Brand Footprint report shows that co-operative dairies such as Amul, Aavin and Nandini are among the top brands chosen by the Indian consumer. Among all fast-moving consumer goods (FMCG) brands in India, Amul was only second to Parle biscuits.
“The success of the Amul model is a result of a unique mix—a company owned by farmers, managed by professionals, where consumer safety and trust are paramount," said T. Nanda Kumar, former chairman of the National Dairy Development Board. “If farmers’ share in the consumer rupee is a measure of success, Amul could be a benchmark while fixing the fruits and vegetables supply chain in India."