Dairy farming, cooperatives and livelihoods: lessons learned from six indian villages

Abstract

India's dairy sector has emerged as the world's largest dairy producer and has enabled 70 million farmers to generate income through its rapid growth. This success is linked to broad national policy support through the Operation Flood program and the emergence of an inclusive model of cooperatives. However, the informal sector is still the marketing channel most used by dairy producers, and with the liberalization of the dairy sector, the cooperative model is also facing competition from the private sector. By surveying 244 dairy farmers in two major but heterogeneous states in India, this paper examines the inclusiveness of the sector and the impact of dairy cooperative membership on farmers’ income and livelihood. The originality of the paper concerns its systematic perspective on households’ assets and activities. The results indicate that cooperative membership is associated with caste membership and farmers collection centers. Better incomes are associated with membership, particularly among farmers with less land and among smallholders, who are more dependent on their dairy income to lift themselves out of poverty.

Introduction

The contribution of Operation Flood (OF) and Indian policy to the dairy industry and its producers is widely acknowledged (The World Bank group, 2011, Shylendra, 2013). Operation Flood, which triggered the Indian "White Revolution" under the guidance of the National Dairy Development Board, supported the development of a vast network of cooperatives to connect rural producers to urban consumers. A total of 180,000 dairy cooperative societies were created with the aim of facilitating access to information and services and limiting transaction costs for millions of smallholders. Since the launch of OF, milk production has increased at a rate of 3.5% per annum to reach self-sufficiency and make India the world's leading dairy producer since 1998. This was made possible by turning a multipurpose herd, providing draft power and milk for home consumption into a more dairy-oriented herd providing milk for market. The production increase was supported by an increase in the number of households owning a buffalo or a cow. Sixty percent of total milk production is by landless and marginal producers (Birthal, Jha, Tiongco, & Narrod, 2008). The dairy sector is a major source of income for an estimated 27.6 million people (Anon, 2012).

With demand from the urban market growing at an average rate of 7% per annum (Kishore, Birthal, Joshi, Shah, & Saini, 2016), the sector is expected to continue to grow, which represents an opportunity for smallholders to generate decent incomes. However, with the world’s largest herds, some of the lowest milk yields in the world and the shrinking area and deteriorating quality of grazing lands, further growth in India's dairy sector is challenging. India’s dairy production system needs to become more efficient. However, concealing efficiency with inclusion is a complex issue in India where land, and therefore resources to feeding the bovines, are very unequally distributed (Raj, 1971). The search for improved efficiency may lead to the capture of the benefits of the sectoral growth by landowners, enlarging their choices while restricting the one of the smallholders and landless (Raj, 1975). Can cooperatives that supported the inclusiveness of the extensive growth of the sector so far contribute to an intensive growth that remains inclusive?

The role of dairy cooperatives in the development of the sector is not straightforward. On the one hand, it valorized only 9% of the production in 2015, with informal marketing channels remaining dominant and competition from private dairies increasing. Since market liberalization in 2003, private dairies have indeed competed with cooperative models, especially among farmers with large herds and high production capacities (Staal et al., 2006). However, cooperatives have a structural role that extends beyond their market share, as they contribute to regulating the conditions of access to the dairy market (NDDB, 2019). First, they are at the origin of the technical and organizational innovations that spread throughout the sector. Second, cooperatives’ prices are used as a reference. Cooperatives have also been reported to have a positive impact on producers. Several studies have reported positive impacts of Indian cooperatives on their members in terms of milk yield, margins and food security (Kumar et al., 2018; Kumar, Mishra, Saroj, & Joshi, 2019).

More precisely, to support an inclusive intensification of production, one needs to understand how milk production intensification contributes to poverty reduction and, more widely, to the livelihoods of the poor. However, the benefits of dairy intensification in terms of poverty reduction are not always straightforward. If poorer households, such as landless and marginal farm households, improve their living conditions through dairy activities (Singh & Datta, 2013), it is at the cost of a higher dependence on bovines for their livelihoods (Kishore, 2016) and of a relatively low valorization of their labor (Aubron et al., 2015, Aubron et al., 2020). In addition, smallholders and farmers with large plots of land take advantage of dairy activities to diversify their income, benefit from fertilization and, at the same time, use their crop production to reduce costs for animal feed, which can be high (Hemme, Garcia, & Saha, 2003). This suggests comparative advantages for dairy farmers who have access to irrigated land.

It is therefore fundamental to consider the household as a whole system of activities and to capture the different income sources (Chandrasekhar & Mehrotra, 2016) to assess the contribution of dairy income to rural household livelihoods. Income from off-farm labor in particular (and its compatibility with dairy activities) requires attention, as it constitutes an important adaptive strategy for Indian farmers to spread risk, stabilize salaries, reduce income inequalities to cope with income differentials (Himanshu et al., 2011, Subramanian and Lalvani, 2018) and contribute to food insecurity reduction (Rahman & Mishra, 2020).

In this context, we relied on a multidimensional analysis based on the livelihood analysis framework (Scoones, 1998) to measure the different contributions of dairy household strategies. The objectives of this study are (i) to describe the assets, resources and practices of rural dairy households and to relate them to the share of dairy activity in household income strategies and (ii) to test the relationships among cooperative membership, dairy income and poverty reduction. In this regard, we relied on a household survey in two districts of two major Indian dairy states, Gujarat, considered the cradle of the White Revolution, and Andhra Pradesh, which has also benefited from the White Revolution but where the cooperative framework was liberalized the earliest with the MACS act in 1995 and where the competition from the private dairy sector is fierce. The influence of dairy cooperatives on income was considered, both in terms of understanding their degree of inclusiveness and their consequences for household levels of poverty, by considering dairy income among other sources of income.

Thus, after a description of the specificities of the dairy industry in the two districts studied and a description of the household investigation methodology, we designed an econometric model to estimate the different impact pathways of cooperatives. These econometric results will be discussed in light of existing recent work.