SIX DECADES OF NESTLE MOGA (INDIA) MILK PLANT 1: CREATING SHARED VALUE
Today (15 November 2021) marks 60 years of operation by Nestle Milk Plant Moga (Punjab, India). It has been a glorious journey from procuring 511 kg milk from 180 farmers in 4 villages on 15 November 1961 to daily procurement of 12 lakh litres from 90 thousand households in 1900 villages covering 25% area of Punjab. The Swiss Fortune 500 company has established a long-lasting symbiotic relationship with its primary stakeholders (milk producers, employees, ancillary companies, consumers, and communities) by integrating local needs, opportunities and endowments with corporate success and profitability.
At the in initiative of US-educated Chief Minister Partap Singh Kairon, the Government of India (GoI) in 1958 invited Nestle (then Food Specialities Ltd) to set up a dairy factory and develop milkshed covering 11,000 square kilometre in this backward, poverty-stricken, and illiterate belt of Punjab. The area lacked milk culture, and selling milk was a social stigma. Nestle’s philosophy of “Creating shared value” firmly grounded the business practice in a ‘community of interests’ among farmers, factory workers, ancillary companies and local consumers, when corporate social responsibility was unheard of. Globally, Nestle’s Moga model is heralded as path breaking approach (Harvard Business Review) and is being replicated in Africa, Asia, and Latin America.
PROGRESSIVE DEVELOPMENTS
During the last six decades milk routes and collection centres have increased from 3 and 63 to 31 and 2,100, respectively. Annual payment to farmers has increased from Rs 91 lakh to more than Rs 800 crore. The landless, marginal, small, medium, and large farmers respectively constitute 19, 28, 25, 21 and 7% of the milk suppliers. Nestle prices were 9–12% higher than the floor price set by the State Government from 1961 to 2008. It also paid 7–10% additional bonus during lean season. Since 2008 the prices are at par. Fortnightly cash income from sale of milk was crucial for small and marginal farmers in reducing poverty, and enhancing their social, cultural, educational, and economic standing.
Nestle directly employs 2,400 persons, mostly from Moga area. Another 86,000 are in full-time employment in 147 support and ancillary industries to meet requirements of the Moga plant. About 2,100 collection agents are annually paid Rs 20 crore. Annual tax payments are about Rs 60 crore. Before operationalization of goods and services tax, the company was by far Moga Municipality’s biggest tax contributor, representing 20–35% of its income.
CLIMBING PRODUCTIVITY, EFFICIENCY AND QUALITY LADDER
When Nestle started operations in 1961, buffalo was the main milch animal, productivity was low, and farming was subsistence. Quality and efficiency were emphasized at all levels of supply chain: inputs, production, milk collection and transportation, processing, and distribution. The company provided quality inputs at cheap rates (feed, medicines, vaccinations, fodder seed) through bulk purchase from manufacturers. Emphasis on improved nutrition and animal health, and transparent system of procurement and payment during formative years (1962–1972) resulted in 13-fold increase in milk collection, necessitating expansion of plant capacity.
Since 1970 focus on genetic upgradation and shift from buffalo to cross-bred cows has raised productivity and lowered lactating season variations. Regular audits of farmers (breeding, health, and production), tagging and database of animals has promoted adoption of good farm practices. Labour requirements are being reduced by providing affordable milking machines (combination of bulk purchase and subsidy) to farmers owning more than 15 animals.
Profitability, critical for continuity of producers with the company, was ensured by providing quality inputs (feed, fodder seed, veterinary services, medicines, vaccines, credit, etc.) at reasonable price, breed improvement, balanced rationing, good management practices, and assured procurement. Since 1995 efforts have been made to promote large scale, mechanised, commercial dairying of crossbreds.
Over the years Nestle has developed a compact and efficient cool chain incorporating global best practices from milking, through collection and transportation, to state-of-the-art facility for manufacturing high value products like baby foods, milk powder, Ghee, nutrition and health products, beverages and noodles meeting global quality standards for HACCP certification.
RIDING AND SURVIVING POLICY SHIFTS AND POLITICAL WHIMS
STATE ACTIONS: Enabling policies and receptive political leadership in 1960s provided strong underpinnings for rapid growth of the company. Punjab Chief Minister Kairon wanted the milk plant in his area at Tarn Taran. When the company told him that they preferred Moga due to train connectivity, better buffaloes, canal irrigation network, and hardworking farmers compared with preponderance of smugglers in his area, Kairon immediately allotted land at Moga and ensured proactive logistic support. Rapid expansion of road network and rural electrification from 1967 to 1990 improved penetration within the milkshed. Except in 1988 (when migratory labour fled), the company never faced any difficulty in collecting milk in terrorism-scared Punjab from 1983–1992.
Around 1995 Nestle started providing chilling tanks at the farms of large milk producers nurtured by it. In 2008 on the direction of Cooperation Minister Late Captain Kanwaljit Singh, state parastatal Milkfed plants started poaching these farmers by offering Rs 1 per litre extra. As a matter of principle, deep-pocketed Nestle refused to match it. It was also the end of higher rates paid by the company although Nestle continues to provide several free services and facilities, lowering production costs. In 2004 the Government of Punjab (GoP) re-levied hefty purchase tax. In 2013 there was rumour of Nestle pulling out from Punjab due to arm-twisting by a powerful politician, although it had invested Rs 9,500 crore. The rumour was quashed when the Chief Minister met with Nestle’s Mr. Antonio Waszyk on 20 May 2013 and promised to address his concerns. The company promised to invest Rs 250 crore in plant modernization.
NATIONAL POLICIES: From 1960 to 1991 the company operated under the ‘License Raj’ with a highly convoluted system imposing controls on inputs, outputs, land, labour, prices, quantities, and quality while the main competitors, being in the cooperative sector, were exempted. The controls were subject to arbitrary changes and bureaucratic dictates. Originally Nestle was allowed to buy milk only from Moga milkshed spread over 11,000 square kilometres. Business operations were micromanaged by Government dictates, and the companies were subjected to sudden requirements which altered profitability and sustainability.
In 1972 part of the milkshed painstakingly nurtured by the company was ceded to Milkfed. With dismantling of the ‘License Raj’ in 1991, Nestle’s exclusivity to buy milk from the specified area was completely withdrawn. Competition for buying milk intensified. Milk and Milk Products Order 1992 imposed sanitary and hygienic controls for enhancing supply of liquid milk. By then Nestle had successfully organised a dependable and sustained dairy culture, and an efficient supply chain in Punjab. It continues to serve a community of interests and deliver attractive returns to the shareholders.
CORPORATE vs PUBLIC SECTOR DEBATE
I have watched Nestle’s contributions since it started procuring milk from my village in 1963. We analysed dairy sector in Punjab in 2002–03 and 2008–09 as part of review of agriculture and livestock sectors in Punjab and India, respectively. Public (cooperative) and private players have 19 milk plants in Punjab. Nestle plant is the largest, processing 12 lakh litre milk daily. Milkfed’s 9 plants process 26 lakh litres. Amul also procures significant quantity. Competition among three main players (and several smaller milk plants) is in the interest of milk producers and consumers. Number of milk suppliers to Milkfed is 3.5 times that of Nestle.
After independence public sector was favoured over private sector in terms policies and philosophy. Despite dismantling of the ‘License Raj’ in 1991, the mindset persists. There are good, average, and bad players in both sectors. In the context of ongoing agitation against agriculture reform laws in Punjab, criticism of private/corporate sector has been sharp, although Adani and Reliance are the main targets. Newspaper articles and TV discussions have highlighted contributions of Milkfed, remaining mum about Nestle. The Swiss company is not flawless and may have cut corners (remember Maggi controversy). However, no one can deny the key role of Nestle in promoting dairy sector in Punjab.
My request to high priests extolling virtues of public sector in Punjab is to spare a day and visit Milkfed Ludhiana and Nestle Milk Plants (I have done it thrice) and Civil Hospital Moga. Compare the Hospital with Nestle plant in terms of hygiene, sanitation, and Covid-appropriate behaviour.
While traveling from Ludhiana to Moga randomly interview farmers supplying milk to both plants in terms of facilities and technical backstopping provided, transparency in procurement, timeliness in payments, etc. Compare the robustness of responsibilities and performance review of, and payments to the collection agents. While comparing milk chillers do not forget to look at the surroundings and damaged flooring due to use of health harming urea.
At the two plants compare all operations from tanker entry, washing, unloading, processing to packaging of final products, including general infrastructure and machinery used to optimise productivity and quality, and compliance with sanitation and pollution protocols. And do not forget to look at the quality control labs and warehouses. Although this may be a rare case, a PAU colleague, whose spouse worked at Ludhiana Milk Plant, always purchased milk from the Dodi (milkman). Reason: she was seeing maggots and other creatures crawling in the warehouse. By contrast, if any chamber in the Nestle tanker bringing milk has a high bacterial count, they identify the farmer within 24 hours and take remedial measures.
For remunerative returns to milk producers, we need level playing field and stiff competition by a vibrant and futuristic Milkfed. With aging machinery, lack of innovative expertise, declining work culture, rent seeking, and the GoP under a rising mountain of debt, future of its milk plants looks bleak. Expensive power supply, deteriorating infrastructure and deficient livestock support services are compounding dairy sector woes.
ACKNOWLEDGEMENTS: This Blog greatly benefitted from the third-party impact assessment of Nestle by: (1) Biswas, A.K., C. Tortajada, A. Biswas-Tortajada, Y.K. Joshi with A. Gupta (2014) Creating Shared Value: Impact of Nestle in Moga, India. Springer Briefs on Case Studies of Sustainable Development. (2) https://www.fao.org/fileadmin/user_upload/ivc/PDF/Asia/16_Punjabi_Nestle_dairy_India.pdf
