Claude Alvares has sent us a letter about the latest World Bank/EEC Joint Review Mission on Operation Flood II. He states that this document was released last month in Europe, yet the two organizations responsible for Operation Flood, the National Dairy Development Board (NDDB) and the Indian Dairy Corporation (IDC) have tried their level best to keep it from the Indian press and public for obvious reasons. Briefly, the World Bank/EEC report recommends that India should no longer receive milk aid from Europe, It also makes a number of other startling assertions it questions for instance the claim that the project has helped women or the poor; it no longer accepts the Anand model as appropriate for uncritical replication all over India. It does not believe that any Operation Flood dairies are running at profit. It therefore accepts that many of the claims of the Operation Flood authorities were plain propaganda.

Not that the World Bank and the EEC: the two principal financiers of Operation Flood, are not themselves also responsible for the fiasco,, which they now lament, and try to distance themselves from. For years, they supported the project; blandly accepting data on the project's progress churned out by the NDDB/IDC, and ignored the critics. Now their total volte face becomes a major assault on their own credibility. Anyhow, now that the World Bank/EEC team has finally agreed that much of the white revolution was indeed a "White lie", I hope the media and the government itself will take a greater interest in the project, instead of continuing to abdicate responsibility in favour of the Amul lobbies' advertisements. Firm action needs to be taken right now before the damage done to the structure of Indian dairying and i.e genuine economic development becomes5 irreversible.

We are publishing below, some extracts from the above report –Editor



1.1 An overall view:

Activities and project -implementation are on the whole, more advanced in those milk sheds where investments were started during Operation Flood phase, not only because more technical and financial effort, over a longer period,! was applied in organizing dairy cooperates and milk marketing facilities, but because they were located in areas where overall conditions favored dairy development. Notwithstanding the high standard of the operational abilities of the professional management, the planned and approved scale of Operation Flood II project was too ambitious. The increase in scale between Operation Flood ll and Operation Flood II was too large in relation to the need to adapt to the very diversified situation. Although the original Operation Flood II plan was considered over optimistic from the beginning, and revised lower targets were incorporated into the World Bank appraisal report, nevertheless the scope of the project remained quite unrealistic and very demanding upon the project authorities. Quantitative activity achievements are fairly impressive, markedly in the areas of farmers' enrollment and processing infrastructure. The original quality standards have suffered somewhat, as observation by a number of people in several places during mission field visits and discussion with project authorities have confirmed.

The quality of achievement is quite uneven across India and the States, pranging from very satisfactory to disappointing. The situation has become very complex and very demanding in terms of rationalizing present operations and building on them. Major issues of research and marketing strategies are not at present given the proper organizational attention and coordination. In the struggle against rural poverty, appropriate dairy development has a role to-play and a potential according to many authoritative sources. State and Union Government dairy sector, planning are at present not strong enough to coordinate efforts in tapping such a potential and to take account the peculiarities of regional technical economic and political situations.

1.2 Findings on specific issues:

The findings are summarized by the following major subjects in the report.

1.2.1. The structure of the Indian dairy sector:

1. The dairy sector in India is very much part of the total agrarian economy: it- is conditioned by the crop production with which it relates in varying complementarities according to the various ecological and socio-economic situations in the Indian sub-continent. Complementarities are strong in the use of labour and especially in the use of agricultural .by-products for cattle feeding. Draught power generation is the main objective of cattle rearing; draught animals have the main claim on feed resources. Milk production comes next. This leads to the majority of cattle and buffaloes in India being underfed and consequently of low milk productivity compared to their potential.

2. The growth rate of milk production recorded in official data appears to be overestimating real growth. A rise in production, at the all-India level, seems related to the increased availability of feedstuffs due to crop production increases.

3. The consumption of milk products is very unevenly spread over Indian households. Access, to milk consumption is more unevenly distributed than that of food grain. There are wide variations in milk consumption due to regional, urban/rural and income differential's. Given present expenditure elasticities and income distribution in India, it would appear that measures improving the income distribution can Have a strong impact on the demand for milk and milk products.

1.2.2. The balance of supply and demand:

1. The figures presented by project authorities regarding increase 1n procurement over the last four years have to be interpreted cautiously, as they refer to a growing number of districts from which milk is procured. Based on one identical core set of districts, the annual increase of total procurement between 1982-83 is about 14%.

The temporary over-extension of existing capacity in some situations, due to the high increase of procurements, has been the result of a complex interaction of several factors-, among which price policies, marketing problems and also an ill-managed policy of producer enrollment in the programme as well as the geographic extension of the area covered under Operation Flood II are most important than a substantial increase in production.

2. A dominant characteristic of the Indian dairy industry is the relatively small volume entering the formal processing and marketing sector. The modern organized sector (public, cooperative and private) controls around 11% of the total production, of which only 5% is marketed as liquid pasteurized milk. The traditional raw milk trade still represents the largest share in liquid milk marketing and, notwithstanding all its defects, it still provides, an essential service to both producers and consumers. If properly organized and within reasonable, proximity to most larger towns and cities it can deliver good quality milk to consumers while at the same time providing the producers with a reasonable share of the final price.

3. Internal production of dairy products (SMP and butter) has reached , the levee that India's import of commodities for recombination into liquid milk during the lean season can be reduced substantially or terminated. Materially, at least, self sufficiency seems close to being reached. However the use of indigenously produced milk power and butter for recombination would indeed have to be subsidized given the present internal pricing structure. The finance needed for the recurrent operation is more or less equivalent to the income which IDC earns out of its present financial assets as interest. As an alternative, consumer prices for liquid milk in metropolitan areas would have to be raised.

1.2.3 The Operation Flood cooperative model :

1. The model adopted by project authorities, developed from experience in the pre-Flood in Gujarat, can be seen in its two fundamental aspects: the organizing of producers cooperatives to control (ownership and management) the overall marketing of milk, and the high capital investment for the milk processing and distributing Infrastructure.

2. The essential characteristics of the cooperative model are an apex organization (a State Cooperative Milk Marketing Federation) responsible for the planning and implementation for each State's programme for dairy development; and Village., Milk Producers cooperatives associated at district level to Milk Producers Union which are members of the State Federations and receive assistance under Operatopm Flood II through them. The financial, technical and organizational assistance is provided by two national organisations: The Indian Dairy Corporation financial aspects, including the handling of donated commodities and the National Dairy Development Board (Technical aspects including the organization of cooperatives and R & D).

3. The cooperative model is a sound one, but its replication to all the very diversified ecological and structural conditions in India has encountered difficulties. The model, while being a welcome supplement to the traditional ways of dairying in the country by contributing to the marketing of liquid milk over relatively long distances, has had the effect of developing a high technology dairy industry operating at high costs.

4. The cooperative development approach adopted during the Operation Flood II period, although a necessity, suffers from the fact that it is a top to bottom one. Large variations in cooperative performance and basic institutional set-up have been documented. In many cases, variations were appropriate ate adaptations to local ecological, social and political situations. In some cases, either the inapplicability of the model or the rigidity of its application has led to substantial -delays or failure.

5. Given the size and structure of the Indian market for milk there 1s room both for expansion of' the same model as well as for alternative organisations. Private dairy projects can be adapted successfully to local conditions, by introducing elements of competition to the organised cooperative sector which can help the development of the dairy industry.

1.2.5. The structure of milk production and input services:

1. Animal feed resources are generally scarce and of indifferent quality, apart from limited irrigated areas where complementarily of dairy activity and crop production is particularly strong. Fodder production development nas been attempted but the response to date has been negligible,

2. Genetic improvements of milk animals through the cross-breeding programme have had only limited success to date. Apart from some regions, cross-breeding as a I generalized technique for yield improvements has failed due to the very special technical, structural and economic conditions needed to make it economically interesting to farmers. "The cross-breeding programme has failed in1 not taking into account the variability of milk yield in first generation cross-breed cows at farm level. Moreover to date, Insufficient attention has been given to the improvement of the indigenous dairy cattle and upgrading of buffaloes and the seasonal variability of production has not been overcome even where substantial increases of cow milk have been obtained.

3. Among the inputs provided under the programme, veterinary services have made a substantial contribution to animal health in the cooperative sector. Even with their many weaknesses and problems, the contribution of Government-services run by various Animal Husbandry and veterinary services must be recognized as the main agents for dairy development in the past and they will continue to have an important part to play in the future. Proposals to dovetail the cooperative sector and the State Government Inputs programme are recommendable.

However, the present project activities should be enlarged in this area to make them cheaper and more effective.

1.2.9 Analysis of the financial statements of selected operations:

1. The majority of operations were either in a break-even or in a repeated annual loss situation. With adjustment for subsidies given by IDC practically all operations would show a loss situation, some coming into a very dramatic situation Indeed. The situation applies to Mother Dairies (Delhi and Calcutta) which are trading at a special advantage according to the analysis performed.

2. From the analysis of the financial records, IDC appeared to be an extremely strong financial institution by 1985/86.

3. The financial reporting of expenditure by IDC is organised according .to 10 action Items and by sub action-items 1n general. Any further disaggregation could not be obtained. The method of accounting used by IDC is a major weakness in the control system, since it prevents internal cost monitoring and management and the carrying out of ex-post cost effectiveness analysis.

2.3 The Input service programme:

3. Genetic upgrading of .milk animals should be oriented towards Indigenous breeds which, within specific ecological regions, have proved to have a milk potential, and towards buffaloes. Specific research efforts should be directed at dealing effectively with seasonality in breeding. Cross-breeding programmes should be implemented only in those areas where climatic conditions are suitable and adequate fodder and good veter1nar-y Infrastructures are available. The social stratification of producers and their level of institutional organization should also be taken care of 1n order to minimize the inevitable unequal1s1ng, Income effects which accompany an major (technological changes; large farmers, with greater capital resources and ability to bear higher risk, may derive undesirable advantages from the technical change.

2.6 Question related to the policy of imports:

1. As already discussed, at present the imports of dairy products (either donated, subsidized or commercial) should be substantially reduced or terminated. In the presence of growing Indigenous stocks, imports would tend to negatively influence the producers market and damage the transition to a viable cooperative, Industry. Imports might later be needed to be resumed with increased sales or in emergency situation in order to guarantee a continuous and stable supply to urban consumers but any action 1n this respect should take place after a substantial deficit has been documented.

2.7 Dairy development and poor producers:

1. Any attempt to reach specific target groups of poor milk producers through projects for dairy development is a difficult undertaking. An important problem is the integrated nature of the constraints facing the landless milk producer: lack of access to feed resources, poor quality of milk animals, and lack of cash for expenses - (veterinary aid, cattle feed, A.I. etc) and low productivity form a vicious circle of poverty from which 1t 1s difficult to break out.

2.10 Recommendations for appraisal of the O.F. Phase III proposal:

There are two areas of concern for future aid programmes for Indian dairy development to take into consideration in the appraisal exercise:

1. Level of flexibility of the technical and institutional model In adapting to regional, ecological, economic, social and political characteristics.

2. Monitoring Systems: The present system for monitoring project progress and impact is rather unsatisfactory. In the absence of bench mark surveys, any ex-post evaluation becomes very difficult and subject to biases in Interpretation.

- Management accounting should allow for better project control and management, as well as for ex-post evaluation of cost effectiveness of Individual project activities.

- At micro level, a system of farm data collection should be considered both for project monitoring and for an, effective advisory service to individual producers. The technical responsibility for such a service might be delegated to Independent academic research Institutions or to Union Government Services -such as the Agro-economic research Centers, but financial resources should be earmarked 1n the project itself.

- In addition, from the "Donors" point of view, there 1s also a strong need, if programmes of such a size are, Implemented, to maintain continuous contact with central and local project simple mentation authorities. A project desk officer should be installed in the country and regular visits to project areas planned and implemented; not only would monitoring be improved but the experience gained would produce useful Information for designing aid projects.

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