TRUST ECONOMY

Why homegrown Amul has little to fear from the Nestlés of the world

The white revolution.
The white revolution.
Image: Reuters/Amit Dave
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Amul is one of India’s iconic brands, certainly one synonymous with dairy in the country, and associated with quality, consistency, and affordability. Amul has woven a web of trust—enveloping everyone from the dairy farmer to the end consumer—bit by careful bit over 70 years, with nary a resort to punishment or threat of the sort favored by the Chinese state. Amul represents a kinder, gentler solution to filling the trust vacuum.

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Kanta ben (sister) has tough hands. “My hands are so strong, if I hit a man, he’ll collapse!” she says. She holds them up for inspection. Then she demonstrates for her visitors how they got so powerful. She squats down under a cow and starts tugging at her bulging udder. She moves her leathery hands up and down, rhythmically squirting out small jets of milk with each tug.

She’s been doing this task for ten cows, twice a day, for a decade. At this point it’s painful for her, but she keeps going. After all, this simple motion has paid for the bounty all around her, and there’s more to be done. As she milks, she talks about her children in the United States. Two of them run motels in New Jersey. She visited another one in London for two months, but she didn’t want to stay. “The kids were so busy it was boring,” she says. “But when they come here, they work just like we do. That’s what they grew up with.”

Back then, her house was more modest. Now a quick glance around shows how far she and her family have come in the past fifteen years. They live in a pukka (solid) brick house with a small courtyard. A Mahindra Scorpio SUV sits in the opposite corner from her cow shed, protected by a dust cover. A motorbike is parked next to it. Kanta estimates that she earns over Rs6 lakh (about $9,000) each year, a very good living for this part of rural Gujarat, in western India. “I am happy,” she says simply.

“She has been working outside for all these years,” her brother Deven chimes in from nearby. “She started from one cow, and has become very successful. She’s very healthy!” He ruefully observes that he, on the other hand, has worked in a shop or an office for the last 30 years. Thanks to this sedentary lifestyle, he developed heart disease and diabetes. “Now I am back on the land.” He, too, has a daughter in London and another in the United States. Over the course of the afternoon, Kanta and Deven explain to their visitors how everything—the house, the vehicles, the children’s education and opportunities abroad, the overall contentment—was created by milk.

Indeed, one can see the results of this prosperity spilling beyond the walls enclosing Kanta’s dusty acre. It’s impossible to miss the difference between this swath of rural Gujarat and typical Indian villages. The buildings are tidier and more solid. The children are better nourished. Even the stray dogs seem healthier. The roads are in better shape and more of them are paved.

“Milk roads,” the locals call them. The farmers of these small towns and villages have created this prosperity almost entirely by joining the Gujarat Cooperative Milk Marketing Federation, popularly known as Amul. These tales of success can be heard over and over again on visits to the dairy factories, headquarters, small farms, and village milk collection centers around Anand, the town where Amul was born some 70 years ago.

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How did Amul’s revolution come about? The cooperative established a web of trust, relying on community-based solutions and patience to do so.

“We are built on the dual philosophy of ‘value for many and value for money,” explains R. S. Sodhi, the managing director of the Amul cooperative. “Value for many [refers to the goal of obtaining] the highest milk prices possible for our farmers, while value for money [aims] to provide consumers with the best quality products at the most reasonable prices.”

Contrast the food quality problems in China with the guiding values that Sodhi says Kurien instilled in his managers from the outset: “Please consider your customer smarter than you. Don’t think that you can tinker with the ingredients or weight. If you employ short-term marketing strategies, your customer will lose faith in you. We are growing, thanks to Amul’s value system.”

As Sodhi describes it, the cooperative’s strength is derived from its involvement in and interaction with the entire process of producing milk, from gathering the original supply from the cows to selling the milk to the consumers.  If both the farmers and consumers trust in the model, he says, then Amul has little to fear from the Nestlés of the world. Indeed, the likes of Nestlé have not shaken Amul’s leadership.

Moreover, Amul’s managers do not fear meddling from India’s raucous political arena, either. Over the years, politicians have tried to turn Amul’s farmers into “vote banks”—a group that can be relied on to vote for a certain political party. However, time and time again such efforts by politicians to co-opt the co-op, so to speak, to further their own ambitions have failed. “There is politics in any organization, but it is left at the door,” another Amul executive once remarked. “The commercial cow is too big to mess with.”

It is a big cow indeed. Although it does not process as much milk globally as Nestlé, the largest dairy company in the world, Amul touches the lives of vastly more farmers: 3.6 million to Nestlé’s 0.6 million in India. Amul is the biggest dairy cooperative in that country. Today, Amul makes more than 70 types of foods from milk collected from 18,600 village societies and sells these foods through 1 million different retailers in more than 4,000 towns and cities across India. Amul is firmly in control as the milk wends its way from the dairy farm to the processing center through the distribution centers, until it is sold to the final consumer. The group even has 8,500 franchise retail shops where only Amul products are sold, making it the largest retail chain in India as well.

What are the building blocks behind this success in building trust? And how does the community-based system work?

In Anand, the spiritual home of the Amul system, a now-famous “three-tiered” structure rules the day. The first tier is the village dairy cooperative society, composed of small household farms. These farmers join the co-op, paying a modest sum of Rs10 for a share, and promise to sell all their surplus milk (beyond their own household consumption) to it. Together, these village societies comprise the eighteen district-level cooperative unions, the second tier, which operate plants that process the milk into various products and packages for distribution. These unions make their own decisions. They both cooperate and compete. The better-managed ones have expanded outside their territories of origin and across India, even competing in states where sister unions are based. And at the state level, there is a federation of the district unions, the third tier, governed by their elected chairmen.

Although cooperatives originating in myriad locations compete with each other, they also cooperate when they try to collectively push back against multinationals.

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Amul and its associated cooperatives are all member-controlled. The farmers elect their own leaders—and those leaders return about 80 percent of the revenues to the farmer-member-owners. Compare that fact to the 35% share received by farmers in the United States and Europe.

Excerpted with the permission of Penguin Random House India from Trust: Creating the Foundation for Entrepreneurship in Developing Countries by Tarun Khanna. We welcome your comments at ideas.india@qz.com