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Dairy sector scales up digital transactions post demonetisation

Diary organisations procure milk from lakhs of farmers. Some have been making payments to farmers through bank transfers while some are still disbursing cash. The demonetisation move has changed the way Indian dairy sector functions.

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Diary organisations procure milk from lakhs of farmers. Some have been making payments to farmers through bank transfers while some are still disbursing cash. The demonetisation move has changed the way Indian dairy sector functions. MOHD MUSTAQUIM reports on how dairy dares to take the challenge

The demonetisation of high value currency notes - Rs 500 and Rs 1000 - resulted into a massive cash crunch for the the dairy industry in procuring milk from the farmers. One of the leading dairies from India’s southern peninsula, the Kerala Cooperative Milk Marketing Federation (KCMMF), famously known as milma, faced tremendous heat on disbursing cash to its milk producing farmers.

Before the demonetisation move by the Government, KCMMF had been paying to 90 per cent of its 500,000 milk producers in the form of cash through its three union and over 3,000 primary milk cooperative societies. KCMMF is making payments to primary cooperative societies through bank transfers while these societies had been paying farmers through cash on weekly basis. The cash crunch following the demonetisation paralysed the functioning which led to food crisis among these farmers within 10 days.

Learning from other dairy cooperatives, the badly affected KCMMF found a way to transfer the payments to the bank accounts of the farmers. Informing about the development, PT Gopala Kurup, Chairman, KCMMF said to R&M, “Since the Government of India demonetised the Rs 500 and Rs 1000 currency notes and put restrictions on withdrawals, our cooperative societies were not able to withdraw the cash from banks. In Kerala, over 90 per cent of farmers already have bank accounts for getting government’s subsidies under Direct Benefit Transfer scheme. Thus, immediately, we started transferring the payments to farmers’ bank accounts.”

“Some societies are transferring to banks, some are paying through cheques, some have their localised milk chains who collect and make payments in cash. Today, within 20 days, 80-85 per cent farmers are getting payment through their bank accounts. We have asked rest of the farmers to open their accounts as soon as possible,” Kurup added.

Showing the way

Even before demonetisation, in 2013 Hatsun Agro Products, a dairy company located at Villupuram in Tamil Nadu had started making payments to over 300,000 milk producers through banks. In the beginning, the farmers were reluctant to accept the idea as they were more familiar with cash transactions.

The company procures around 2.8 million liters milk from 4,500 milk banks (MBs), comprised over 300,000 farmers from 8,000 villages. The existing process had a time lag between the delivery of milk and receipt of payments by farmers.

Hatsun wanted to differentiate itself by paying farmers as soon as they deliver the milk to the collection centres. This necessitated the MB in-charge to maintain sufficient cash on the payment days of the week. Further, this mode of payment resulted in many operational and security issues like risk of huge cash handling, misuse of cash at MB in-charge level and increased turnaround time of payments.

Initially, those farmers who already had accounts in banks, were made a part of the initiative. However, due to the low penetration of banks in the villages, the large number of farmers were out the banking system.

In association with YES Bank, Hatsun Agro started opening ‘no frill’ accounts for the unbanked farmers under ‘YES Kisan Dairy Plus’ initiative. “YES Kisan Dairy Plus, processes straight payments and removes the role of middlemen to reduce turnaround time and enables dairy farmers to access funds instantaneously,” said Nitin Puri, President and Country Head – Food and Agribusiness, YES Bank.

The step enabled Hatsun Agro Products to migrate from cash payment to electronic modes and fair payment to milk producers by removal of middlemen. Under the initiative, farmers started getting real-time electronic payments and evidence through immediate SMS alerts on their mobile phones. It boosted the trust of remaining reluctant farmers who joined the practice later.

The demonetisation of Rs 500 and Rs 1000 currency notes had minimal impact on the operation of the dairy company. There was no impact of demonetisation on it sales through 2500 retail outlets either.

India’s largest dairy cooperative, Gujarat Co-operative Milk Marketing Federation (GCMMF), famously known as ‘Amul’ procures milk from 36 lakh milk producing farmers through 18,500 cooperatives across Gujarat. GCMMF has already been making payments to over 12 lakh farmers through bank transfers even before the Government’s demonetisation move. The recent development of declaring old currency notes of high denomination invalid has prompted the organisation to make electronic payments to the rest of the farmers.

“We had already been paying 12 lakh farmers through banks even before demonetisation. After November 8, we have opened bank accounts of over 8 lakh more farmers till mid of December. We are on the process to open accounts of the rest of the farmers, RS Sodhi, Managing Director, GCMMF told R&M.

When Sodhi was asked whether demonetisation has affected his business, he said, “Neither it has impacted our milk procurement from the farmers nor sale of milk. However, in the first week of demonetisation, the sale of discretionary products such as cheese, ice creams and other milk products were affected only. In November, we had record growth which was more than 20 percent.”

In a development on December 23, 2016, the Central government has directed GCMMF to open bank accounts of rest of farmers till December 30, 2016 so that payments through banks can be made to 100 per cent of milk producing farmers. Similarly, the Government has asked other milk co-operatives to open accounts of 100 percent milk producers by January 30, 2017.

Against all odds, the mismanagement in supplying of cash by the banks, led to cash crunch and problems in daily expenses in the rural areas and among the farmers. To protest the prolong hassle, thousands of rallying farmers under the banner of Gujarat Khedut Samaj in Surat and Anand in Gujarat dumped their farm produce and milk on the streets.

The protesting farmers in a memorandum to the district collector demanded immediate corrective measures. Many villages in the state do not have nationalised banks are dependent on district central cooperative banks which were barred from exchanging process of old scrapped notes with new and valid ones. Later, due to the nationwide demand, the cooperative banks were allowed to join the process.

To avoid such situations, the organisations which have been transacting through cash will have to follow the path of Hatsun Agro Products, KCMMF, GCMMF and others who are transacting through banks. For the future growth and sustainability, it has become necessity to bring farmers into banking system.

The electronic payments minimise the mistakes due to human intervention as compared to traditional cash payment model. With 146 million tonnes annual output, India is the largest milk producing country, but the sector is largely fragmented and unorganised. The growth story of dairy sector would come by minimising the role of middlemen and best productivity and marketing practices. The electronic payment to farmers models have shown the way to the other dairy organisations. 

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