Milk marketing options for the dairy farmers in open economy and their choice in Tamil Nadu, India

D Thirunavukkarasu and N K Sudeepkumar*

Communication officer, ILRI, ICRISAT Campus, Patancheru, AP, India-502324
thiru45@yahoo.com
*Associate Professor, Department of Veterinary and Animal Husbandry Extension, Madras Veterinary College,
Chennai, Tamil Nadu, India-600007
sudeep66@hotmail.com
(Part of Post graduation research work in Madras Veterinary College, Tamil Nadu, India)

Abstract

In the study area predominantly three marketing options were available for the dairy farmers; unorganized vendors, formal / organized dairy cooperatives and integrated contract system.

A majority of dairy farmers around 57.3 percent had shifted from one marketing option to another. The rest 42.7 per cent of dairy farmers remained in the same marketing option from the day they began commercial milk production. A major shift from vendors (informal system) to contract (39.5 per cent), followed by vendor to co-operative (24.4 per cent) and co-operative to vendor (19.8 per cent) was noticed. Irregularity in payment and stoppage of procurement by vendor system made dairy farmers shift from vendor system to others. After the weakening of vendor- farmer relationship and initiation of Milk Producer Cooperatives at the village level, there has been a shift from vendor to co-operative system. When the dairy sector opened for private investment coupled with poor performance of cooperatives, farmers shifted towards new marketing option the 'integrated contract system'. Irregularity in payment, distant location of collection centre and inability to milk the animals were reasons for shifting back to vendor from other marketing options.

Prompt payments, sustainability of marketing systems in business were major factors responsible for retaining members and attracting new dairy farmers. Dairy farmers with the experiences of various marketing options gave more value to the prompt payment for the milk sold on comparing to milk prices.

Key words: Contract system, cooperative, dairy, milk marketing, vendors

Background on milk marketing options

In the study area predominantly three marketing options were available for the dairy farmers. In the unorganized sector,  private vendors, and  in the formal / organized sector the dairy cooperatives and integrated contract system were the options. The vendor system refers to the system where an individual middleman purchases milk from dairy farmers and in turn sells it to consumers. The system works on an informal agreement with the farmers. On the other hand cooperatives were organized such that dairy farmers voluntarily associate themselves as members of the cooperative, on the basis of equality for the promotion of their socio-economic well being, i.e. Milk Producers Co-operative Society (MPCS). While in the Integrated contract system there is the association, co-ordination and amalgamation of companies engaged in various stages of production of a particular product or related products, so that there will be a smooth flow of inputs and outputs, from one unit to other, leading to an overall reduction in the cost of production of the final product (Narahari et al 2000). In this study, integrated contract system means the association of resources, co-ordination of dairy related activities, and amalgamation of dairy production at varying levels in various stages of the production up to marketing by a private firm. This system is also referred to as "contract farming" and the farmer is referred to as "contract farmer".

The existence of the three marketing options necessitated understanding the farmer's reasons for selection of marketing systems to sell their milk. The study was taken up, keeping in view the above methods of marketing options for dairy farmers.

Methodology

Namakkal district of Tamil Nadu province was selected for the study, because it falls under the Salem-Namakkal district co-operative milk producers union, which is procuring the highest amount of milk (2.87 lakh litres) per day in the province of Tamil Nadu. Secondly, Hatsun Agro Limited, one of the major private dairies having 60 per cent of private dairy market sector in Tamil Nadu is operating on contract agreement with the farmers as dairy integrators in this district. And all the three systems of milk procurement namely vendor, co-operative and integrated contract systems are operating in this area.

Change of marketing options among dairy farmers

The composition of respondents applying the three marketing systems and their reasons for choosing one over the other over are presented and discussed in this paper.

From Table 1 it was observed that more than half (57.3 per cent) of the dairy farmers had made a shift from one to another marketing option.

It was observed that 42.7 per cent of dairy farmers remained in the same system of marketing from the day they began commercial milk production.

Table 2 indicates that the major shift was from vendor to the integrated contract system (39.5 per cent) as well as to the co-operative system (24.4 per cent).

This shift is attributed to the initial periods of formation of the above two systems and the provision of services like artificial insemination, veterinary services, feed supply, price based on quality of milk and assurance of regular payment, bonus, credit facilitation and technical inputs. This wide range of services and credibility of the integrated contractor and co-operative systems has become a better alternative to the vendor system. These two marketing options have capitalized the weakness of the informal vendor system and have made an in-road into the organized dairy sector.

The first shift of the dairy farmers was noticed during the entry of integrated contract system 9 years ago, when it was first introduced, while the later one during the initiation of cooperatives under the operation flood program (World Bank supported program) initiated in the 1970s.

Preferences and the reasons behind shifting of marketing options for selling milk

Table 3 reveals the reasons for dairy farmers shifting from vendor to co-operative system.

Most of the shifting by dairy farmers happened immediately after the formation of MPCS during the 80's and 90's. Before the arrival of the dairy cooperatives, irregularity in payment for the milk sold and huge exploitation of dairy farmers by the middleman existed (Ghuge and Netaji Powar 1992). Vendor's irregularity in payments led to the initiation of MPCS. This in turn paved way to farmers shifting away from the vendor system. After the cooperatives were established the business of vendors came down ultimately resulting in reduced milk procurements and finally weakening of the vendor system. This also forced the few dairy farmers wanting to follow the vendor system, to opt for MPCS. The above were the primary reasons for shifting from vendor system to co-operative system.

Table 4 indicates the reasons for dairy farmers shifting over to integrated contract system from other two systems.

The opening of the dairy sector for private players in early 90's resulted in further increase of competition and business failures of the vendor system resulting in exit of a section of vendors. The closure of business (discontinuance of vendor) and unsatisfactory milk procurement prices forced dairy farmers to shift from vendor to integrated contract system. The reason for shifting to integrated contract system was primarily due to irregularity in payment by the co-operative system, which started to percolate in the mid of 90s.

The irregularity of payment started to grip the MPCS system similar to the vendor system due to business failures and privatization of the dairy sector (Vydhianathan 2001). This made farmers look for better alternatives, which can promptly pay for the milk they sold. On the other hand, under the open economy the contract system started to emerge out in a phased manner. This provided the dairy farmers new options for marketing of milk. The irregularity of payment for the milk sold forced the dairy farmer, to shift over to contract system.

Table 5 reveals the reasons for shifting of dairy farmers from co-operative and integrated contract system to the parental vendor system.

This shift resulted in the farmer returning to the old option. The irregularity of payment for milk was the main reason for change over from co-operative to vendor. Other important reason was distant location (in certain cases the farmers needed to travel three to four kilometers to sell the milk to cooperatives) of milk collection centers against vendor procuring milk at farm gate. Business failures subsequently lead to MPCS closure, which in turn led the farmers to look for other alternatives to sell their milk, finally resulting in ending up with vendor for their conveniences. Certain farmers who were unable to milk their animals started to look for vendors who provided milking services.

Irregular payments for the milk, unable to milk the animal and distant location of collection centers were the prime reasons in the descending order for shifting from the integrated to vendor system.

Conclusion

• Prompt payments, sustainability of marketing systems in business were major factors responsible for retaining and attracting new dairy farmers. Gopalakrishnaiah and Pochaiah (1989), Thirunavukkarasu et al (1992) and Rao (1997) observed that members of MPCS found low procurement prices for the milk as one of the constraints. But with the experiences with various marketing options, farmers feel that rather than milk prices, prompt payment for the milk sold is a greater issue.

• On a major scale the shortcomings of the cooperative system were converted to advantages for the integrated contract system. This facilitated the contract system to retain farmers. The farmers appreciated the payment pattern in the contract system. This was essential to cut out the competition from the cooperatives, which owned a higher share of the organized milk market. On the other hand the shortcomings of the organized sectors retains the vendor system in the business with a reduced role in the study area. But it may be very premature to pass on valuable judgment on these counts. The organized private dairies are in the scene in the last nine years, so it may take time to completely stabilize operations in the diverse socio economic background and to establish a marked difference in this aspect. So it may be a bit to early to conclude if the contract system is the best marketing option for the dairy farmers to sell their milk.

References

Ghuge V B and Netaji Powar 1992 Dairy development in India: Pattern and progress. The Maharashtra Co-operative Quarterly, Volume LXXV (4): pp. 231-234.

Gopalakrishnaiah C H and Pochiah Maraty 1989 Impact of primary milk producer's co-operative societies on beneficiaries in Nalgonda district of Andhra Pradesh. Indian Co-operative Review, XXVII (1): pp. 278-281.

Narahiri D, Asha-Rajini R and Prabaharan R 2000 Integration in poultry production. Poultry economics and projects, printed by New print and process, pp. 215-220.

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Thiruvavukkarasu M, Prabaharan R and Ramasamy C 1992 Operation flood-A few constraints. Indian Journal of Social Work, Volume LIII (1) pp 115-118.

Vydhianathan S 2001 Milk union finance in a mess. The Hindu, June 17, 2001.