Lessons from milk for agriculture

White Revolution, based on milk processing and distribution, provides pointers for horticulture

The recent farm loan waivers across states totalling around 1-1.5 per cent of 2017-18 gross domestic product (GDP) point to something fundamentally wrong with agriculture.  It has brought the issue of agricultural reforms to the centre stage. The waivers cannot be undone. But, they call for a scrutiny of the direction and pace of reforms in agriculture to put the sector on a path of sustainable growth. Three lessons from the White Revolution involving milk may be relevant in this context.

Production of milk had gone up in two decades from 17 million tonnes in 1951-52 to only 22 million tonnes in 1971-72. Milk was “cheap, but not available” through the government outlets in urban centres in the late 1960s and early 1970s. With the White Revolution, output more than doubled in each of the next two decades to 56 million tonnes in 1991-92 and 128 million tonnes in 2011-12.

The National Dairy Development Board (NDDB), founded in 1965, launched Operation Flood with the sale of skimmed milk powder and butter oil gifted by the European Union through the World Food Programme. The triple objectives of “a flood of milk”, augmenting rural incomes, and ensuring reasonable prices for consumers were not only attained but also in a sustainable way. The backbone of the programme was the Anand Pattern of co-operatives of milk producers in different parts of the country. Amul, the brand name of the Gujarat Co-operative Milk Marketing Federation, owned by more than 3.5 million milk producers in Gujarat, became a household name. Over time, government undertakings, such as the Delhi Milk Scheme (DMS) or Bihar State Dairy Corporation (now, Bihar State Milk Co-operative Federation), were handed over to the NDDB.

Generally, success in agriculture has been limited in areas other than milk. Indeed, milk has got some unique characteristics relative to many other agri-products. For example, milk is more homogenous than rice, making it easier to procure, transport and store. Rice comes in many varieties such as basmati, gobindabhog, and sona masuri. Furthermore, milk is produced every day through the year unlike many seasonal agricultural commodities, such as mangoes. Yet, despite these unique characteristics, three important lessons, particularly the “soft touch” nature of government intervention, may be learnt from milk.

Illustration by Binay Sinha

First, not government undertakings, but co-operatives, successful in many countries such as New Zealand, the Netherlands and Denmark since the 19th century, were promoted for milk. In milk, very little entry barriers, without the shadow of a gigantic public sector undertaking (PSU), promoted competition in procurement, transportation, storage, and distribution. Milk was delicensed in 1991 and subjected to the Milk and Milk Product Order (MMPO) of 1992 under the provisions of Essential Commodities Act, 1955. But, the MMPO, even before its repeal in 2011, was more for maintaining the quality of milk supply by large dairies.

The nature of government intervention in wheat and rice was starkly different.  The Food Corporation of India (FCI) was set up in 1964, a year before the NDDB. The FCI’s mandate was to carry out price-support operations for safeguarding the interests of the farmers, to distribute foodgrain throughout the country for the public distribution system, and to maintain adequate levels of operational and buffer stocks of foodgrain to ensure National Food Security. There was even a 10-month-long abortive move to nationalise the wholesale trade in wheat in April 1973 under Indira Gandhi!

A monolithic and gigantic central PSU to deal with vital foodgrain along with the system of  minimum support price (MSP) and procurement at MSP made the economics of wheat and rice, including where to procure and at what price, and also the wage bill of the FCI, vulnerable to political pressures. Before the Punjab polls in February 2014, Prime Minister Narendra Modi had suggested unbundling the FCI into three parts for procurement, storage and distribution.  

In January 2015, the high-level committee (HLC) under the chairmanship of Shanta Kumar gave its report on restructuring the FCI. The HLC recommended handing over all procurement operations of wheat and rice in Andhra Pradesh, Chhattisgarh, Haryana, Madhya Pradesh, Odisha and Punjab to state governments, as they have sufficient experience in and reasonable infrastructure for procurement. It recommended that the FCI should “move on” to help the states in the east – such as Uttar Pradesh, Bihar, West Bengal, and Assam – which still awaited the green revolution, and where small farmers dominate and sell much of their produce below the MSP. It is time to act on either the prime minister’s suggestion or the HLC’s recommendation.

Second, there has been no MSP for milk. MSPs, as the HLC has pointed out, continue to distort the market for 23 agricultural goods. Furthermore, the FCI procurement is restricted to wheat and rice, with MSPs doubling up as procurement prices. As recommended by the HLC, the government should revisit its MSP policy.

Third, the country has made considerable progress in horticulture with its output of 269 million tonnes surpassing that of foodgrain for the first time in 2012-13.  But there is scope for much more progress in horticulture. Its demand is going up rapidly with increasing income. Because of the labour-intensive nature of fruits and vegetables and higher value realisation, their promotion can also generate prosperity for the small farmers. For this, a major requirement is cold chain or logistics support for storage and distribution to maintain the inventory within predetermined ambient parameters. Particularly glaring is the acute shortage of pack-houses with conveyer belt systems for sorting, grading, washing, drying, weighing, packaging, pre-cooling and staging, and of reefer vehicles with active refrigeration designed for environment-controlled carriage of products. 

Much of the White Revolution is due to the rapid development of milk processing and distribution infrastructure, such as developing and installing automatic milk collection units for quality verification and bulk coolers at the village level, processing and packaging plants, tankers to transport the milk at 4°C, and bulk vending machines. A lesson from milk for horticulture is the need to facilitate the development of the requisite infrastructure through private sector initiatives. 
 

The writer is an economist