News on Adulterated Milk

Aavin dairy products - The food business – A state-run enterprise milks its dairies for profit
Tuesday, 26/01/2016

Velayudham, a farmer near Erode, has been a loyal milk supplier to Aavin for more than five years now. Despite the presence of private dairies who have in the past offered higher procurement prices, he has stayed with Aavin. “With Aavin, I know for sure they will take my milk even if the payment is less or delayed sometimes. My cow cannot stop and start at my will and I need a steady market,” he says.

Aavin, a state-controlled federation of cooperatives, has been the big daddy of the milk market in Tamil Nadu, setting a benchmark for procurement prices as well as retail rates. A recent case of large-scale adulteration by an ulteration by an AIADMK functionary put the spotlight on Aavin’s efforts at quality control. When there was a glut in 2014, largely due to the overseas market in milk powder collapsing, farmers took to the streets arguing that Aavin should step in and increase offtake.

In response, Aavin’s procurement touched a new high of 30 lakh litres daily last year an increase of one lakh litres over five years. Over a period, it has also increased purchasing price by Rs 3 per litre. The federation now buys cow milk at Rs 28 and sells its branded milk at Rs 34 in the open market. Aavin has increasingly sought to professionalise operations and has a strong brand presence in the foods and dairy segment. Unlike the more heavily subsidised and loss-making state-run federation in Karnataka, for instance, the TN model has in recent years aimed at improving revenues.

“For the first time in more than a decade, the federation has earned profit of Rs 6 to Rs 7 crore a month. This has helped meet dayto-day expenses and distribute dearness allowance and bonus for workers on a par with government employees,” said a senior official, who did not wish to be named. The procurement is still largely oriented towards providing support to farmers and subsidized dairy products to about 40% of consumers (who can buy milk at the state-controlled rate of Rs 27 a litre). But at the same time, Aavin has sought to expand its range of valueadded products to find a lucrative outlet for the surplus milk it procures. New customers like Baba Ramdev’s Patanjali group and Kerala’s Milma are sourcing their milk powder and butter from Aavin. This has helped increase annual revenues from Rs 2,369 crore to Rs 3,881 crore over five years.

Of course, critics say that since Aavin is unable to make productive use of all the milk it procures but has budgetary support to tide over that problem, it skews the market and disallows a level-playing field to other players.
Criticism notwithstanding, Aavin has been on an expansion drive. It opened a new dairy in Tiruvannamalai and has increased capacity at other plants. “With budgetary support of `493 crore over five years, we have upgraded capacity for processing milk and sourced machinery to make ice creams and other milk-based products,” said an official.

Currently, of the 30lakh litres procured daily, 11.5lakh is sold in Chennai and another 9 lakh in other districts. The balance is used to make butter, sweets, ice cream and milk powder. Butter is a major target segment. “There is a margin of 30% in sale of butter, ice cream and other products. This compensates the loss incurred by subsidy to milk card holders. The margin is only 3% to 4% in sale of milk,” said the official.

“We have a marketshare of 50% in milk in Chennai but have a long way to go in capturing a share of market in butter and ice cream. Next month we plan to roll out 116 varieties of ice cream in 12 flavours. At present we are using only 40,000 litres of milk to make ice cream, this will increase to 1 to 1.5 lakh litres once ice cream machines in Ambattur dairy become operational,” he said. Terms such as `marketshare’ and `product range’ may seem out of place in state-controlled enterprises, which are usually saddled with losses and debt, but Aavin appears to be in the creamy layer.


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