The sudden resignation last month of K Rathnam as managing director of the oldest of the 18 milk unions in Gujarat that market their products under the Amul brand name has raised vital questions about the functioning of India’s most-loved dairy cooperative.

Rathnam left the Kaira District Cooperative Milk Producers Union after some members of the union’s board alleged that a Rs 450-crore scam had unfolded during his three-year tenure. Rathnam said the allegations were politically motivated. As for his resignation, he claimed he wanted to spend more time with his family in Tamil Nadu and the United States.

Among the concerns raised by the board members was the Kaira Union’s transaction with an Erode-based private dairy called Milky Mist. Between January 2015 and December 2018, Kaira bought 8,700 tonnes of Cheddar from Milky Mist even though both Kaira and its sister dairy at Banaskantha have cheese-manufacturing plants. The Milky Mist deal violated the principles of the Gujarat Cooperative Milk Marketing Federation – constituted by and regulating the 18 unions – that require members to purchase raw materials from sister unions, said Kaira board’s vice chairman Rajendrasinh Parmar and director Tejas Patel.

They added that the deal caused a loss to the cattle farmers who form the Kaira Union because the Cheddar was purchased from Milky Mist at between Rs 292 and Rs 315 per kg, even though cheese from the Banaskantha and Sabarkantha cooperative diaries in Gujarat was cheaper by about Rs 50.

As reported in the first part of this series, Rathnam and Kaira Union’s chairman Ramsinh Parmar have denied wrongdoing. This second part looks at how the Milky Mist transaction sheds light on the effects that the politicisation of the milk unions is having on the Amul federation.

Eroding cooperation

The Amul federation of district milk cooperatives has witnessed three leadership transitions. It was founded in 1946 by Gandhian freedom fighters such as Tribhuvandas Patel. Around the 1990s, control over the cooperatives went to regional satraps such as Banaskantha’s Parthi Bhatol. These men were not members of political parties but used the cooperatives, often the biggest economic engines in their districts, to gain power locally. Since 2002, though, Amul has seen the ruling Bharatiya Janata Party gradually establish its control over the district unions.

Today, chairmen of all 18 Amul district unions belong to the BJP. This report in December explained the mechanics through which the BJP established control, and how the fierce competition to win elections to head the dairies was hurting them financially.

In Kaira’s case, the union tied up with a private company to procure Cheddar instead of striking a symbiotic agreement with Banas Dairy. Another instance of similar deal had surfaced in 2013 when Mehsana Dairy’s Vipul Choudhary was accused of selling 7,000 tonnes of milk powder to private buyers.

There is, a former Kaira Union official said on the condition of anonymity, far less cooperation between unions than before. “Things are very different now from the founding days,” he said. “There is something very criminal when you are keeping your own capacity idle and buying from outside.”

If two union leaders see themselves as competitors – for, say, the post of chairman of the Gujarat Cooperative Milk Marketing Federation or a plum political appointment – will they be enthusiastic about any transaction that also helps their rival grow? Take Mehsana’s Dudhsagar Dairy. A couple of years ago, a senior official at the federation said, milk sourced from Mehsana was being sent for processing to Sabarkantha and Banaskantha in an apparent attempt by the BJP chairmen of other cooperatives to marginalise Vipul Choudhary, head of the Dudhsagar cooperative. Chaudhary apparently became unpopular in the BJP after he met Rahul Gandhi in 2013.

As a consequence, the official said, capacity utilisation at Dudhsagar fell to almost 50%, reducing its capacity to pay attractive rates to farmers. This compelled Dudhsagar to put its dairy in Dharuhera, Haryana, up for sale. A few month ago, asked Gujarat Cooperative Milk Marketing Federation’s managing director RS Sodhi, Banaskantha’s chairman Shankar Chaudhary and Vipul Chaudhary about this allegation. None of them responded.

In all this, there are questions about the Gujarat Cooperative Milk Marketing Federation’s role in such political tussles. “The federation took action against Mehsana for private transactions but is silent on Kaira,” said Kaira Union’s chairman Rajendrasingh Parmar.

Sodhi did not respond to’s questions about this matter. This article will be updated if he does.

Banas Dairy in Banaskantha, Gujarat. Photo courtesy Banas Dairy

Weakening financial health

In tandem with the politicisation of the cooperatives, tales of financial mismanagement are increasing. Amul has four large district unions and 14 small ones. The big ones are Banaskantha, Sabarkantha, Mehsana and Kaira. These, said the former Kaira Union official, “account for most of Amul’s milk procurement and control as much as two-thirds of the voting power” on the Gujarat Cooperative Milk Marketing Federation’s board.

Over the last five years, three of these four unions have faced charges of financial impropriety. In 2013, Mehsana’s Dudhsagar Dairy was rocked by allegations around the milk powder deal and a decision to supply fodder to Maharashtra. As with Milky Mist, the checks and balances built into the system didn’t flag the problems. Instead, they surfaced after chairman Vipul Choudhury met Rahul Gandhi. After that, as The Indian Express reported, the BJP chairmen on the Gujarat Cooperative Milk Marketing Federation’s board united against Choudhury, eventually forcing him to step down.

In 2017, reported how the eroding financial health of Banas Dairy was partly down to candidates spending large amounts of money on their campaigns to become chairmen or directors at the dairy and, then, trying to recover their investment from dairy operations. The allegations over milky mist now raises questions about governance standards at Kaira as well.

All this underscores the need for a financial audit of the Amul federation and the 18 unions that constitute it. Currently, two audits have been ordered, one by the Kaira Union and the other by the state government. But, as the first part of this series noted, both are problematic. Kaira is auditing itself; the BJP government is auditing an organisation controlled by the ruling party.

What is needed is a fully independent audit. For at stake is nothing less than one of independent India’s greatest institutional achievements – Amul.

This is the second part of a two-part series on Amul.