Cooperative Losing Members to a Private Milk Buyer
A 28-member village dairy cooperative in Kamrup collects 850 L/day and pays members on a two-axis fat/SNF formula, averaging Rs 35/L. It sells milk to the state federation at Rs 46/L. A private processor offers members Rs 38/L flat at the gate but will not test fat or pay for rejected milk. In the past month, 20% of members have side-sold, collection has fallen to 680 L/day, and the cooperative's fixed cost of Rs 7,000/day and transport cost of Rs 2.50/L are spread over less milk. Two members complained that their payment was short by Rs 900, and the secretary cannot explain the fat test. The cooperative has Rs 1.2 lakh in reserves and a 20,000 L chilling tank.
1. Analyse the cooperative's financial position at 850 L/day and at 680 L/day, and decide whether it should match the private buyer's Rs 38/L flat price. Show the calculations.
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At 850 L/day
- Milk sales: 850 × Rs 46 = Rs 39,100
- Member payment: 850 × Rs 35 = Rs 29,750
- Transport: 850 × Rs 2.50 = Rs 2,125
- Fixed cost: Rs 7,000
- Total cost: Rs 38,875 → margin about Rs 225/day, essentially break-even.
At 680 L/day
- Sales: 680 × Rs 46 = Rs 31,280
- Member payment: 680 × Rs 35 = Rs 23,800
- Transport: 680 × Rs 2.50 = Rs 1,700
- Fixed cost: Rs 7,000
- Total cost: Rs 32,500 → loss about Rs 1,220/day.
If the cooperative matched Rs 38/L at 680 L
- Member payment: 680 × Rs 38 = Rs 25,840
- Transport plus fixed cost: Rs 8,700
- Total cost: Rs 34,540 against sales of Rs 31,280 → loss about Rs 3,260/day.
Decision: Matching the flat price is not viable with the present cost structure. The cooperative would lose more than Rs 3,000/day and exhaust its Rs 1.2 lakh reserves in about five to six weeks. The private offer also shifts rejection risk onto members.
The cooperative should instead protect volume and quality: explain the fat/SNF formula, pay a transparent quality bonus when possible, reduce fixed costs, and negotiate the federation price. If it must respond, it can offer a smaller interim top-up tied to volume or quality, not a permanent flat Rs 38/L.
2. What governance and quality changes should the cooperative make, and how should it handle the two short-payment complaints?
Read the worked answer
Governance changes
- Display the fat/SNF payment formula and the day’s rates at the collection centre.
- Give every member a printed or digital weighment and test slip; keep a sample for re-testing.
- Form a small quality committee of members to witness random tests and check the fat analyser against a standard.
- Hold a general body meeting to explain the true cost per litre and why a flat Rs 38/L offer is not automatically better.
- Separate the transport and fixed-cost accounts so members can see why low volume hurts the cooperative.
Quality changes
- Test each member’s milk for fat and SNF before pooling; record the result against the member’s code.
- Reject or downgrade visibly abnormal, adulterated or mastitis milk at the collection point.
- Train members on clean milking, teat dipping and straining; poor-quality milk is a bigger long-term threat than the private buyer.
- Keep the chilling tank at the correct temperature and record it; use the 20,000 L capacity to hold milk safely when transport is delayed.
Handling the two complaints
- Re-test the retained samples and compare them with the member’s slip and the analyser record.
- If the test was wrong, correct the payment immediately and record the cause.
- If the test was correct, show the member the reading and the formula, and explain the SNF difference.
- Report both cases at the next committee meeting and introduce a simple appeal procedure.
Judgement point: The cooperative cannot buy loyalty with an unsustainable price. It can retain members by making the payment system trustworthy, improving quality and showing that the private buyer’s flat price carries hidden rejection and testing risks.