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283. On the Global Milk Market, Co-operatives Dominate

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Photo Credits: Georges van Hoegaerden, Denis-Carl Robidoux, Jon Sullivan, C. Frank Starmer, Kevin Law

Big business might be synonymous with the multinational corporation. But some of the largest, most influential businesses are owned and operated as co-operatives. One market in which the co-operative model has a significant presence is global milk production. According to a survey published by Rabobank in July, two of the world’s five largest dairy companies are co-operatives, with combined sales of $29.1 billion in 2011, or nearly a third of the group’s total.

Milk as a commodity lends itself especially well to the co-operative model. Milk is homogeneous, highly perishable, and storage and processing it from a raw product to ones with more stable shelf lives like milk powder require expensive facilities and technologies that benefit from economies of scale. Additionally, milk’s supply and demand are often at odds with one another: how can a dairy farmer in Gujarat, India who milks three liters a day market his meager collection 700 kilometers away in Mumbai?

The largest milk and dairy co-operatives in the world have thrived in different markets by taking different paths. India’’s Amul, the largest dairy company in a country that has emerged as the world’s largest milk producer, got its start over 65 years ago when the dairy farmers in Gujarat staged a “milk strike” against exploitative trade practices from middlemen. With a production capacity of less than 250 liters of milk between them, the farmers formed the co-operative that has since grown to include 3 million farmer members. These farmers, on average, milk only three liters a day from the one or two cows they raise, and travel no more than 10 miles to milk collection centers spread throughout the country. And therein lies one of the keys to Amul’s success: its diffuse network means it can meet demands even if a number of its farmers individually can’’t. In turn, these farmers have a willing and built-in buyer near home, who will further process, transport and market their milk under what has become one of India’s most recognizable household brands.

While Amul has dominated the milk and dairy market in India for decades, the larger trend among agricultural co-operatives, especially in developed countries, is to merge together until a large enough co-operative forms to achieve such dominance. One example is the transformation of New Zealand’s Fonterra into what has essentially become a monopoly of the country’s dairy industry as well as the world’s largest dairy co-operative. The seeds were planted early: by the start of the 20th century, the majority of the country’s dairy companies were already owned by co-operatives of dairy farmers. As these co-operatives pursued exports, they realized co-operation would be more beneficial than competition and whittled even further, from over 400 co-operatives in the 1930s to just a dozen in the 1990s. In 2001, the two remaining dairy co-operatives joined forces with New Zealand’s dairy board to form a sole co-operative owned by 96 percent of the country’’s dairy farmers.

Some milk and dairy co-operatives look across national borders for merger partners—, still a rarity in the co-operative world. Among the highest profile transnational mergers have been in 2000, when the largest dairy co-operatives in Denmark and Sweden resulted in Arla Foods, and in June, when Arla Foods merged yet again with Britain’s Milk Link for a mega co-operative that now includes 9,000 Danish, Swedish and British farmer members.

With transnational merger partners, near monopolies and brands that are among the most recognizable in their home countries, the largest milk and dairy co-operatives around the world are proving that the co-operative model can be a staggeringly successful one.

Author of this story
Ratha Tep
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