After years of exporting Amul products to the US market to feed the Indian diaspora there, the Gujarat Co-operative Milk Marketing Federation Ltd, or Amul, began manufacture of a few of its products at a facility in New Jersey a few months ago.
“We have started production in the US by making three or four products. We buy milk from local cooperatives and convert it into ghee , paneer and shrikhand under the Amul brand. A third party is converting it into our brand at its dairy. We have been exporting to Indians but since we were facing problems, we started manufacturing in the US,” says RS Sodhi, Managing Director, speaking to BusinessLine on Campus after he received a distinguished alumni award at the Indian Management Conclave held recently at ISB, Hyderabad.
Sodhi, an alumnus of the first batch (1979) of Institute of Rural Management, Anand, said Amul exported ₹240 crore worth of milk products last year; the year before, it was ₹540 crore but the export market for commodities (milk) crashed. Amul will focus only on value added export, avers Sodhi. He expects the US market to eventually notch up ₹100 crore in revenue. “But our focus is on the domestic market,” he emphasises, even though Amul is exported to over 50 countries. Amul will also explore manufacturing in the EU markets as exports to those markets are not allowed, he adds.
Annual turnover
Amul’s turnover for 2014-15 was approximately ₹21,700 crore. Its daily milk procurement is approximately 14.85 million litres per day from 18,536 village milk cooperative societies.
Sodhi says Amul will invest ₹1,000-1,200 crore a year for the next few years to expand its dairy facilities. Amul has 60 dairies around the country, all owned by it.
“This year we will be adding many dairies: one each in Faridabad, Lucknow, Mumbai, Kanpur and Kolkata, and three in Gujarat. A modern dairy requires approximately ₹250-500 crore to set up,” he says. Amul is also setting up a new milk powder plant in Gujarat at an investment for ₹500 crore and a cheese plant for ₹600 crore.
Prices
Asked about the financing of its investment plans, Sodhi says: “We borrow; we don’t have much profits or reserves, so we borrow to build, we get base rates for our credibility. We have never defaulted.”
Speaking on milk prices, Sodhi says it’s an extremely difficult situation all over the world as milk prices have crashed by 50 per cent.
“Farmers of dairy countries like New Zealand are getting half the price from the same time last year; in Europe it is 30 per cent less. In Maharashtra also farmers are getting 30 per cent less. But our farmers are happy as we sell mostly value-added products; only 5 per cent is commodity (plain milk). Our margin is paid to the farmer,” Sodhi explains.
Elaborating on the predicament of New Zealand, which exports 95 per cent of its dairy products, Sodhi says the same time last year, skimmed milk powder was selling in the international market for $4,000 a tonne but has now crashed to $1,700 a tonne.
In January, Amul launched pouch milk in the Hyderabad market, procuring it locally to process as well as bringing milk from Gujarat in insulated trucks. The cost of trucking it works out to only ₹2 a litre.
“Our strategy is to launch milk from Gujarat initially and then slowly step up procurement from local cooperatives. Local cooperatives are our ‘brothers’ too, we help one another. The market is huge and it is better that cooperatives compete and collaborate as it’s better for farmers and consumers,” explains the Amul MD.
There are no immediate plans to expand further in the south, he says, as the cooperatives are fairly well run and offer “less opportunities for intervention.”