Détente in the Dairy Sector?

Dairy farmer milks cow in India

INDIA: Small dairy producers could benefit from technologies provided by large multinationals.
Source: © 2010 S. Mann/ILRI

Small dairy producers and multinationals may be able to work together

Since the 1960s and 1970s, cooperatives have played the role of “white knight” in India’s dairy sector, freeing smallholders from the restrictions of the informal dairy market and improving the productivity, market access, and livelihoods of rural dairy farmers. Large multinational corporations such as Nestlé, on the other hand, are often seen as villains. But how accurate is this story of good versus evil?

Little Evidence

The role of multinational corporations in developing-country agriculture has long been controversial. Supporters argue that foreign direct investment by multinationals helps create job opportunities and economic growth for poor populations, while critics claim that these corporations do more harm than good by exploiting developing countries’ low wages and lenient labor and environmental laws and then absconding with all the profits. Despite all of the noise surrounding the presence of multinationals in developing countries, however, IFPRI Senior Research Fellow Bart Minten points out that “the debate suffers from lack of evidence, as few people have actually gone out there to measure multinationals’ impact.”

A recent study conducted by researchers from IFPRI, Research Foundation Flanders (FWO), and the University of Leuven examines the role of Nestlé, one of the world’s largest multinational dairy corporations, in the dairy market in India’s Punjab. Nestlé has long come under wide attack for its approach to marketing infant formula, but Oxfam’s “Behind the Brands” Scorecard rates the company fairly highly in terms of its impacts on workers and farmers in the developing world. In this latest study, researchers compared Nestlé’s impact on small milk suppliers with the impact of both local dairy cooperatives and the informal dairy sector.

Technological Trailblazer

According to results published in the Journal of Agricultural Economics, farmers reap more benefits from supplying formal channels (both cooperatives and multinationals) than from supplying the informal sector. However, the farmers supplying Nestlé were actually more efficient, and just as profitable, as those supplying the cooperatives. Furthermore, the multinational channel did not exclude small farmers, as critics have often suggested. In other words, says Anneleen Vandeplas of the University of Leuven, “The hostility toward foreign direct investment in food and agricultural markets, which has been quite strong in India until very recently, is not always legitimate.”

Another important finding, says Minten, is Nestlé’s role as a technological trailblazer. “Nestlé plays a leading role in bringing innovation to the dairy sector—and the cooperative sector often copies these innovations. There are important technological spillovers for the dairy sector as a whole due to the presence of multinationals.”

The study has important implications, both for India and for other countries looking to transform their agricultural markets. Says Vandeplas, “Rather than focusing on one development model alone, policymakers should keep an open mind and investigate how different types of partners can interact with each other to reach the most favorable outcome for all actors involved, particularly the weakest.”

For more information on this topic:

  • "Multinationals vs. cooperatives: The income and efficiency effects of supply chain governance in India," by A. Vandeplas, B. Minten, and J. Swinnen, Journal of Agricultural Economics 64(1): 217-244

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  • Suresh K

    A timely article. In terms of quality, co-operative sector has to go a long way.