Karnataka is in focus now because of the ongoing assembly election. The Karnataka Milk Federation (KMF) is the second-largest dairy co-operative in India and procures nearly 50 per cent of all the milk supplied by the state’s farmers. What makes the situation complicated and tragi-comic is the state government’s role in supply chain. While the system seemed functional in normal circumstances, the cracks surfaced in recent weeks. As the summer season began early this year, demand for milk rose. Simultaneously, supply naturally dropped in the summer, as milch animals produce less than usual in the hotter months.

The controversy arose in the wake of reports that an attempt by the Central government was afoot to start the process of forming a multi-state co-operative society by merging Amul and five other co-operative societies. Shah scored a political self-goal by stating at a pre-election rally in Mandya that Amul and Nandini should co-operate with each other. This fanned the fear was that dairy farmers in Karnataka would be hurt as the procurement of fresh milk from them would be impacted and brand Nandini would get diluted.

This was despite the fact that brand Amul has been available in the Karnataka market since 2015 and Amul has also been selling pouch milk and curd in the Northern districts of Dharwad and Belagavi. Even in Bengaluru, Amul’s long-life dairy products have been marketed for decades.

Demand-supply gap

For another product, a market-based price rise would have quickly ironed out this demand-supply gap. But when governments occupy centre-stage, prices become sticky political issues. 

First, electoral concerns are guiding pricing decisions. The state government did not want to touch prices with a barge pole because the state elections are due in May. Instead, it tried a round-about way by making the packet size smaller, while retaining the old packet price.

Second, since the administered price rises have not done enough to make the demand-supply gap go away, milk shortages emerge. The rich can afford to buy premium milk at higher prices from other suppliers. But for the poor, the milk packets disappear from shelves. Instead of paying a slightly higher price until supply rises again, the less-privileged consumers are left to fend for themselves.

Third, the government resorts to blaming private dairies for offering higher prices to dairy farmers. Given the economic situation of farmers, we should have celebrated private players providing a better deal to them. Instead, they become villains in a story where the government is the sole hero. It’s no wonder some dairy farmers in Tamil Nadu emptied milk containers on the road demanding a better procurement price from the state government.

Fourth, inter-state tensions have come to the fore as the Karnataka government blames dairies in Maharashtra and Tamil Nadu for offering higher prices to farmers within Karnataka. In contrast, the Tamil Nadu government resorted to blaming private companies from Andhra Pradesh. Even the entry of a competitor like Amul that could have quickly reduced shortage is being opposed on the grounds of sub-national pride.

Finally, many small milk producers have given up on rearing cows as it has become unsustainable. Industry sources say that one reason for this could be that the 2020 state law banning cow slaughter and frequent attacks on people transporting cattle has discouraged smaller farmers from stepping into this minefield called milk production.

Row reaches Kerala

So far, Karnataka has been in the throes of an Amul vs Nandini row. The Opposition and pro-Kannada groups has been lashing out at the BJP-led state government for allowing Amul to sell fresh milk and curd in Bengaluru, alleging that it would hurt the business of the local brand Nandini produced by the Karnataka Milk Federation (KMF). There have been attempts to stop Amul from being sold in Karnataka, fearing the brand will affect KMF’s Nandini, a brand built by the state’s farmers.

The row erupted in December last year, after Amit Shah called for co-operation between the co-operative-model-based dairy companies – Amul and Nandini. The Opposition alleged that the state government intends to merge Amul with Nandini, an allegation with the ruling BJP has dismissed. “Nandini will become the number one brand in the country,” stated Basavaraj Bommai, chief minister, Karnataka. “But there must be no politics over Amul.”

In the latest chapter of the snowballing row, Kerala Co-operative Milk Marketing Federation (KCMMF), known for the brand Milma, is now objecting to Nandini entering the state. Karnataka’s own dairy brand Nandini had expanded to Kerala and opened two outlets in the southern state. The move however, drew flak from the local co-operative milk marketing federation.

The KCMMF has objected to the move saying that it is concerned over the tendency of some state milk marketing federations to “aggressively enter markets outside their respective states”. The federation holds that “this involved total breach of co-operative spirit based on which the country’s dairy sector has been organised for the benefit of millions of dairy farmers”.

Milma calls it ‘unethical’

K.S. Mani, chairman, Milma, Kerala’s own local brand, called the practice ‘unethical’. The tendency to enter the markets outside one’s domain by opening sales outlets or roping in franchisees should be avoided, he felt. Initially, they sold only value-added products, then start selling liquid milk also and subsequently begin shop-to-shop distribution of milk.

“The move of Amul (Gujarat Milk Co-operative Federation) to promote its staple products in Karnataka has been met with strong resistance from the stake-holders in that state,” says Mani. “But Karnataka Milk Marketing Federation recently opened its outlets in parts of Kerala to sell its Nandini brand of milk and other products. How could this be justified? Whoever does this, it is a highly unethical practice which defeats the very purpose of India’s dairy movement and harms the interests of the farmers”.

This trend, he adds, will only lead to unhealthy competition among states, which needs to be reined in with the Union and state governments coming together to evolve a consensus. “Of late, there has been a growing tendency on the part of some of the state milk marketing federations to market their staple products outside their respective domain. This grossly violates the federal principles and co-operative spirit based on which the country’s dairy co-operative movement has been built and nurtured by pioneers like Tribhuvandas Patel and Verghese Kurien.”

Cross-border marketing

Criticising the Karnataka Milk Federation for opening its outlets in parts of Kerala, Mani said that this involved a total breach of the co-operative spirit, based on which the country’s dairy sector has been organised for the benefit of millions of dairy farmers.

He also cited an agreement stating that cross-border milk marketing amounts to ‘blatant encroachment of the sale area of the respective state’. “As per the prevailing agreement and courteous business relations existing among milk co-operatives, cross-border marketing of liquid milk shall be avoided, as it amounts to blatant encroachment of the sale area of the respective state. Such practices from any side will jeopardise the spirit of co-operative principles that have been nurtured for a long by mutual consent and goodwill,” Mani affirmed.

As reported by The Economic Times, Mani has also written to KMF. “In the dairy sector, all of us have to prosper by being ethical to each other.” He further expected KMF to respect the same stand taken in Kerala. 

Tejasvi Surya’s swipe

Tejasvi Surya, the young, firebrand BJP MP from Karnataka, took a swipe at Congress leader Rahul Gandhi, who recently visited poll-bound Karnataka. The Congress leader, along with state party chief D.K. Shivakumar and general secretary K.C. Venugopal, visited Nandini Milk parlour in Bengaluru. He bought a Nandini ice-cream and termed the flagship brand of Karnataka Milk Federation (KMF) as ‘the state’s pride’. Retweeting his tweet, Surya said that Gandhi should now intervene in Kerala for the smooth sale of Nandini.

“Glad that Rahul Gandhi thinks Nandini is the best. There is no doubt about it. I request him to intervene in Kerala for the smooth sale of Nandini. If not, this will be yet another gimmick. Waiting for Rahul Gandhi to make a public announcement in Kerala for free access to Nandini,” Surya tweeted.

Tejaswi’s swipe apart, can Nandini versus Amul fight be a factor to reckon with in the 2023 Karnataka’s contest? The answer to this question is rooted in the importance of dairy co-operatives in Karnataka’s economy. 

In Karnataka, as per the 2018-19 Situation Assessment Survey (SAS), the share of rural households that produce milk is 23.6 per cent. Given the fact that rural households have a share of 56 per cent in Karnataka’s population, according to 2023 population projections by the National Commission on Population, this means that about 13 per cent of Karnataka’s households are milk producers.

How does this compare vis-à-vis other states in India? If major agricultural states of India (states that house at least 1 per cent of India’s agricultural households) were arranged in order of how important dairy farming is in the state, Karnataka would lie in the middle of that table.

It is ranked ninth among the 20 major agricultural states by share of rural households producing milk (23.6 per cent) and 11th by share of agricultural households producing milk (43.1 per cent). The 2018-19 SAS defined agricultural households as those that produced agricultural products worth at least Rs4,000 in the year preceding the survey and had at least one member self-employed in agriculture.

 SAS survey finding 

The SAS data shows that co-operatives are regarded as critical in Karnataka, when it comes to overall and per capita share in the value of milk procured and value of milk, more than 50 per cent of which is sold to co-operatives in Karnataka, second only to Gujarat, the home of dairy giant Amul. Karnataka is also ranked second or third in terms of per capita value of milk sold to co-operatives, depending on whether one looks at milk sold by rural or agricultural households. Nandini is the biggest buyer of milk from Karnataka’s dairy farmers. This makes fears about Nandini allegedly losing its market share to Amul a potent political issue in Karnataka.

The milk row in Karnataka has raised the important question about its political impact. If all of Karnataka’s dairy farmers were concentrated in a small geographical pocket, it would have more likely influenced the overall outcome of the elections. Karnataka’s livestock census, which was last conducted in 2019, shows that geographical pockets which have a large share of cattle production are concentrated in an arc along the coast going into a few districts of southern Karnataka, such as Chikmagalur, Ramanagara, Hassan, and Mandya. Milk production is much more concentrated in southern Karnataka districts. This is where the Nandini versus Amul narrative will have a bigger traction.

South holds the key

The rise of the BJP in Karnataka began from the coastal region and now it is slowly expanding its footprint elsewhere. In the previous assembly elections, the party had performed well across the state, except in southern Karnataka. In this region, the stranglehold of the BJP is weak and it is still behind the Congress and JD (S).

However, in the last Lok Sabha elections, the BJP improved their performance significantly. The party received 40 per cent votes and was leading in 22 out of 51 Assembly segments in Karnataka. The BJP will have to repeat its performance in southern Karnataka to form its government in the state. While how seriously the Amul versus Nandini narrative will impact BJP’s prospects remains to be seen, the encouragement to Amul to spread its wings in Karnataka on the eve of election may not turn out to be a politically astute decision.

As for the ordinary and prominent residents of Bengaluru, it is a case of much ado about nothing. “It is a downright silly and a sad thing to happen,” says Avik Chattopadhyay, co-founder, Expereal, a brand strategy firm. “One can understand and accept business rivalry but this is being given angles of politics and regionalism, which needs to be completely condemned.”

Lloyd Mathias, business strategist and angel investor, adds, “This seems to me to be a manufactured controversy. What Amul has done recently in Karnataka is launched Amul Taaza and Amul Masti and not launched fresh milk, which is where Nandini dominates the market. Nandini is a strong, established local player in Karnataka and its price points are much, much lower.”