Milk Price Cut Versus Member Loyalty

Current economics: realisation ₹44.50 − procurement ₹35.00 − processing/marketing ₹7.80 = ₹1.70 per litre surplus at current volume, or about ₹1.05 lakh a day on 62,000 litres.

The proposed cut looks attractive on paper: a ₹2 cut would raise the paper margin to ₹3.70 per litre and save about ₹1.24 lakh a day if volume stayed constant. But volume is already falling. The 4,000 litres a day already lost represent about ₹6,800 a day of lost contribution at ₹1.70 per litre-roughly ₹2 lakh a month. If 60 societies leave, the loss could be much larger.

Fixed-cost trap: the plant is at 78% utilisation. Fixed cost is ₹1.20 per litre at 62,000 litres. If volume falls, fixed cost per litre rises. A price cut intended to improve margin can therefore be partly self-defeating: lower procurement reduces member income and loyalty, volume falls, and processing cost per litre rises.

Co-operative principle problem: members are both owners and patrons. Cutting the procurement price takes surplus away from them, while a dividend pays shareholders in proportion to shareholding, not milk supplied. That weakens member economic participation and equity. The private dairy's ₹4.50 premium is real, but its 20–25 day delay is a genuine disadvantage; the union's 10-day payment is a competitive strength.

Likely outcome: the proposal may protect the balance sheet for one season but accelerate member exit and reduce plant utilisation. It is a high-risk response to a margin problem.

The board should not make an across-the-board ₹2 cut. A better package is:

• Retain the base price at ₹35.00 for the immediate season and protect the 10-day payment cycle, which is a visible member benefit.
• Introduce quality-linked pricing for fat and SNF so that payments are fair and members see a reason to improve quality rather than simply comparing headline rates.
• Reduce processing and marketing cost through energy audit, route optimisation, packaging review and better capacity utilisation. Even a ₹0.40–0.60 per litre saving is significant at this volume.
• Use surplus as patronage refund or bonus linked to milk supplied, where the Act, rules and bylaw permit, rather than declaring a dividend that rewards shareholding. If a dividend is declared, it must come from genuine surplus, not from a price cut that harms members.
• Target 85% utilisation by retaining societies and adding new ones; do not let the plant lose volume while chasing a paper margin.
• Communicate the full comparison to members: price, payment delay, quality deductions and year-end bonus. The private dairy's ₹4.50 premium is not the same as ₹4.50 in hand today.

The board should place a cost sheet before the AGM showing the effect of the price cut on a typical member with, say, 8 litres a day. That makes the trade-off concrete.

A pricing change is a member-interest decision, not a purely managerial one. The board should:

1. Table the full economics-realisation, processing cost, fixed cost, surplus and the effect of volume loss-not just the proposed price.
2. Consult village societies through their delegates and record their views; 60 threatened societies are a material signal.
3. Consider alternatives such as quality pricing, cost reduction and patronage bonus before voting on a price cut.
4. Check legal limits on dividend and surplus distribution under the Act, rules and bylaw; a dividend cannot be used to disguise a reduction in member price.
5. Record the decision and dissent in the minutes, with reasons and a review date.

If the board proceeds, it should phase the change and monitor volume monthly. A co-operative board can make an unpopular decision, but it must show that it weighed member interest and did not treat members as captive suppliers.