Amul federation could be soured by corruption charges against its oldest cooperative in Gujarat

On March 31, K Rathnam abruptly resigned as managing director of the Kaira Union, the oldest of the 18 cooperatives that market their products under the Amul brand name.

The announcement came shortly after some board members of the union, including vice chairman Rajendrasinh Parmar, alleged a Rs 450-crore scam during Rathnam’s three-year stint running the cooperative.

For their part, Rathnam and Ramsinh Parmar, the long-standing chairman of the Kaira Union, said the resignation was a routine matter. Rathnam, 55, told The Indian Express, “I have given Amul 22 years of my life. Now, I wish to spend time with my family that is settled in Tamil Nadu and America.” Both said talk of corruption was politically motivated.

Two weeks later, as public attention has gradually moved away, the contradiction between these claims and counter claims has not been discussed much in the media. In the process, urgent questions about the functioning not just of the Kaira Union but also the Gujarat Cooperative Milk Marketing Federation, which coordinates the Amul cooperatives, are slipping under the radar.

What happened at Kaira?

For several weeks now, an unsigned 26-page document has been doing the rounds within the Kaira Union. Written in Gujarati, with a title that loosely means “Unconventional methods adopted by Amul MD Rathnam”, the document levels a series of allegations against the former managing director. Among other things, it flags cost overruns at Kaira’s plant in Mumbai’s Virar area as well as its new chocolate factory. It also alleges that spare parts and dairy equipment are being purchased from a few handpicked companies; that bulk milk chillers are bought at higher rates than prescribed by the federation; that labour contracts in the dairy are inflated.

Several former officials of the Kaira Union and serving directors on its board told Scroll.in they believed the allegations had a ring of truth about them and should be examined. Scroll.in took a closer look at one of the major allegations: the Milky Mist transaction.

Why buy privately?

Between January 23, 2015 and December 18, 2017, the Kaira Union bought 8,734 tonnes of Cheddar cheese – input material for processed cheese – worth Rs 262.32 crore from a private dairy in Erode, Tamil Nadu, called Milky Mist.

This was a puzzling transaction. First, Kaira has its own cheese-making factory that can produce Cheddar. Second, it bought Cheddar from Milky Mist at prices between Rs 292 and Rs 315 per kg even though – as a financial officer at the sister cooperative diary in Mehsana who did not want to be named pointed out – cheese from the Gujarat milk federation’s Banaskantha and Sabarkantha cooperatives was cheaper by about Rs 50. In addition, halfway through this period, in April 2016, the Banaskantha cooperative launched a large cheese factory that effectively doubled Amul’s cheese-making capacity. This unit, according to a former senior official at Kaira, is severely under-utilised. “One hundred per cent of its capacity is lying idle right now,” the former official said. “It is odd Kaira Union did not tap into that and instead brought readymade cheese from outside.”

As a part of the Amul federation, Kaira must comply with a set of cooperative principles. “If Kaira dairy did not have enough raw material, we should have bought from a sister dairy cooperative in Gujarat,” Kaira union vice chairman Rajendrasinh Parmar said. “If that is not available, then from another dairy cooperative in the country.” In the Amul network, transactions with private companies are rare, small in size and usually handled by the federation, not by individual cooperatives.

Through this period, Rathnam was managing director, a professional appointment. Ramsinh Parmar was chairman, an elected position. Rathnam took charge in March 2014 while Ramsinh Parmar has been at Kaira for 20 years.

Contacted on the phone, Rathnam confirmed the transaction with Milky Mist and described the allegations as baseless but declined to elaborate. In a subsequent email, he said: “All the points mentioned in your mail for my response are part of the ongoing audit process. Hence I wouldn’t like to comment as it would [be] inappropriate and let the process complete so that outcome can be known for all.”

Ramsinh Parmar said the federation had asked Kaira to produce more cheese than Banaskantha could deliver, leaving Kaira with no option but to buy from outside. This decision, he said, was approved by both the Kaira board and the Amul federation.

Scroll.in wrote to RS Sodhi, managing director of the Gujarat Cooperative Milk Marketing Federation, asking if the federation had cleared the Milky Mist transaction. Scroll.in also asked about the protocol to be followed for an out of federation transaction. He did not respond.

Rajendrasinh Parmar, vice chairman of the Kaira Union, rejected chairman Ramsinh Parmar’s explanation. He claimed to have found out about the transaction only in February when he visited the union’s own cheese-making plant at Khatraj. He also dismissed the explanation for needing to buy cheese from Milky Mist, pointing out that the federation allots manufacturing targets to each union after factoring in its manufacturing capacity and milk production. If anything, he said, Kaira should have converted its surplus milk into cheese. Instead, he alleged, they turned the surplus milk into milk powder and bought cheese from outside. “Why were we converting milk into powder when we needed cheese?” he asked. “Why did we not buy cheese from Banaskantha? Why did we buy at a higher price? And from a private dairy?”

There are other questions that have gone unanswered. Did the federation approve the Milky Mist transaction? How was Milky Mist chosen? Was the quality of the cheese it supplied approved by the federation?

Scroll.in phoned and sent text messages to Milky Mist’s managing director T Sathish Kumar to ask how the firm had been chosen for this supply contract. He did not respond.

Milky Mist is not the only company in Erode that Rathnam, whose hometown Salem is 75 km away, has tied up with in recent years. The other is a cattle feed supplier called RGS Feeds. The founders of Milky Mist and RGS Feeds are both associated with Olirum Erodu Foundation, which self-describes as a non-profit “to recreate a world-class Erodu”.

Political conflict?

The transaction with Milky Mist continued for three years. One reason it is being flagged at this stage has to do with the politics of Amul.

As Scroll.in reported last December, between 2002 and now, the Bharatiya Janata Party has come to control all 18 Amul milk cooperatives in Gujarat. Kaira union chairman Ramsinh Parmar, a former Congress legislator, was among the last of the holdouts from the old regime. But last August, he too switched. Kaira union vice chairman Rajendrasinh Parmar, on the other hand, has remained with the Congress. Some observers believe the current standoff is a conflict along party lines.

Another view traces the events back to the Assembly election late last year which went badly for several BJP leaders associated with Amul. Ramsinh Parmar lost his Assembly seat in Thasra. His party colleague, Shankar Chowdhury, former health minister and current chairman of the Banas Dairy, the biggest Amul dairy, lost as well. This, a retired federation official who did not want to be identified said, triggered attempts by some district milk union chairmen to become chairman of the federation as the post is a way to regain political muscle. Eventually, in the election held in January, Ramsinh Parmar prevailed. As per the norms, the retired official said, only a serving chairman of a cooperative can become chairman of the Gujarat Cooperative Milk Marketing Federation. So, the official added, an effort is underway to dislodge Ramsinh Parmar from the Kaira union. If he loses chairmanship of the union, he would automatically lose the leadership of the federation as well.

Asked about the timing of the allegations, Ramsinh Parmar said that his appointment had caused some unhappiness. He alleged that the head of another district milk union was backing Rajendrasinh Parmar and Tejas Patel, one of Kaira’s directors, in a bid to dislodge him. Rathnam repeated this claim. “This is all about politics that I do not want to get into,” he said.

But, as the Milky Mist transaction shows, some of the questions raised are valid. The whole controversy cannot be dismissed as political theatre.

Ineffective oversight

Though the Amul system discourages “out of federation” transactions by unions, it failed to stop Kaira’s dealing with Milky Mist for three years. This raises questions about the quality of checks and balances in both the Kaira Union and the Gujarat Cooperative Milk Marketing Federation.

Amul has financial checks and balances operating at four levels.

1.   A copy of every purchase order goes to Kaira’s internal auditor.
2.   The Kaira Union board has monthly meetings at which the managing director updates directors about the dairy’s operations.
3.   Not only does the Gujarat Cooperative Milk Marketing Federation have a nominee on the Kaira board – in this case, Sodhi himself – it also has monthly planning and coordination meetings. At these meetings, which are chaired by Sodhi, “all MDs come together and decide production, dispatch, sales and inventory”, said the former Kaira Union official. These meetings help the federation balance production between unions and treat them all fairly.
4.   Then, there is the state audit. This, said the official, is current and concurrent. The auditors, who have an office in Anand, send quarterly reports to the milk unions, the federation and state government.

None of these mechanisms flagged the Milky Mist transaction. As for the board, Rajendrasinh Parmar and Tejas Patel claimed that they got little information during board meetings. Another possibility is that as long as the board was loyal to Ramsinh Parmar, it did not raise any questions.

Scroll.in asked Sodhi how effective the Amul system’s checks and balances were. We also asked why the planning and coordination meetings, and he himself as the federation representative’s on the Kaira board, had failed to flag the transaction. He did not respond.

The government audit, said Patel, did not flag the transaction either.

Hurting the poor

Private transactions such as the Rs 262 crore deal with Milky Mist hurt the interests of the nearly seven lakh farmers who are part of the Kaira Union’s milk procurment societies. Going by the federation’s assertion, 80% of the value of finished products goes back to farmers. If Kaira had bought locally, the dairy farmers’ income would have gone up by Rs 210 crore, that is, each would have earned about Rs 3,114 more.

Kaira’s financial records show something odd. Even as its annual revenues have grown at 16%-20%, the growth in what it pays farmers for milk for fat content per kg has fallen below 6% since 2013-’14. This suggests, said the former official at Kaira, that the gains from growth were going elsewhere – into heads such as debt servicing or operating expenses.

When asked about the slowing fat per kg rate, Ramsinh Parmar said: “That is not correct. You do not understand the business.” On being pressed, he said he is answerable to his board, not to outsiders.

The farmers’ troubles run deeper. At a village between Anand and Nadiad, cattle owners alleged that Amul’s milk procurement centres were under-counting the fat content. They claimed that when they sell their milk to a private diary called Polson, the machines always show a higher fat content. Sometimes the difference is as much as 20%, said a young dairy farmer near Vadtal who did not want to be named for fear of retribution from his milk society.

This echoed what a senior dairy manager had told Scroll.in last year. He had alleged that unions were undercalibrating the machines that measure the fat content in milk. As a result, the farmers were underpaid and the surplus was siphoned off.

The villagers were categorical that this was not a recent trend. Yet, so far, the authorities’ response to such allegations has been dismissive. While working on an earlier report about Banas Dairy, this reporter was repeatedly told by senior officials at the federation and Banas that there could not be any level of corruption because the villagers would not tolerate it.

On the ground, though, the story is different. In Vadtal, the young farmer was not very hopeful that the fresh dairy elections would bring any real change. “Anyone who gets voted in behaves well for three months and then becomes like the rest,” he said.

As such, instead of opposing these structures, he is navigating them with care. He has 10 milch cattle and supplies milk from three of them to Amul 20-25 days a month. The rest of the time, he sells to Polson. As for milk from his remaining livestock, he sells that directly to homes in the vicinity. “We were so tired of the Dairy that we started selling from home to home,” he said.

He listed three reasons for why he does not sell milk from the three cows to Polson alone. First, because he does not want to lose access to other services Amul provides – veterinary care and annual bonus per head of cattle. Second, if they sell to Polson too often, the village society officials threaten to slash their annual bonus, which can be anywhere between Rs 5,000 and Rs 10,000 per milch animal.

Third, he said, “If we stop supplying, the dairy will shut down. Then we will be dependent only on the private dairy.”

Rathnam declined to answer the questions put to him, saying two audits were underway. The first of these is being conducted by the Kaira Union, the second by the state government. The first is investigating itself. The second is the BJP government investigating possible malfeasance in an organisation the party controls.

It is anyone’s guess how far they will go in examining how India’s much-loved dairy federation is doing.

This is the first part of a two-part series on the recent debates around Amul. The second part can be read here.