Amul heads India’s white revolution in COVID-19

Gujarat based Amul has been leading the white revolution in the country. Amul brand is managed by a cooperative body, the Gujarat Co-operative Milk Marketing Federation Ltd. Managing director R.S. Sodhi expects an enviable 15-16% revenue growth.

Amul heads India’s white revolution in COVID-19. 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.

Advertisement

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 parlor. 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. However, dairy products are exempted from the lock down.

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.

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 lock down 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 lock down 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.

India announced a total lock down 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.

Soon after the lock down 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.

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.

However, 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%. Also for ice creams nosedived during the lock down 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.

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.

“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.”

Source: Live Mint (livemint.com)