Nearly 30 years ago, Amul chose to "lose" the chocolate battle to win the dairy war. But the future will never be the same.
Amul chocolate bar. Photo: Balaji Bharadwaj/Flickr CC BY 2.0
At the recent 75th anniversary ceremony of the milk cooperative Amul, Minister of Family and Cooperation Amit Shah advised the leadership not to limit the interests of the movement to its 3.6 million farmer shareholders.
He pointed out that successful cooperatives should create an online platform to sell non-dairy farmers' products globally, especially with organic farmers as an example.
Although this is an admirable vision statement, it seems to be a big problem, reminding us of a small problem about 6 years ago.
Amul’s involvement in the chocolate field should be attributed to C. Subramaniam, who served as Minister of Agriculture of India from 1964-67. He is an often forgotten member of the Troika, including Nobel Prize winner Norman E. Borlaug and famous agricultural scientist MS Swaminathan. Together they are considered the architects of the Green Revolution. After learning that Indian cocoa growers were deprived of fair product prices due to the existence of the monopoly buyer Cadbury, Subramaniam suggested to Verghese Kurien that Amul should enter the chocolate world. This is a minor problem, because chocolate has milk connections and can be distributed through the cold chain network established for butter.
Therefore, in the late 1960s, Amul began working with betel nut and cocoa farmers in Kerala and Karnataka to form cooperatives. This movement eventually became an independent organization in 1973. We now call it CAMPCO-Central Arecanut & Cocoa Marketing and Processing Co-operative Limited-and it is now a company worth 1,800 crore. The cocoa beans are then transported to Anand in Gujarat and processed into chocolate in a factory established with the help of Nestlé.
Nestle? The relationship between Cullion and Nestlé is legendary. In the 1950s, condensed milk was a popular form of milk consumption and storage in cities, as the supply of milk was insufficient and refrigerators were not so common. In 1956, Kurien went to Nestlé's headquarters in Vevey, Switzerland at their invitation, and attached a message from Manubhai Shah, then Minister of Industry and Commerce, that Nestlé should use Indian milk to produce condensed milk in India instead of importing powdered milk and sugar. The discussion became fierce, and Kreeber, a joint medical doctor of Nestlé Foods, finally stated that the process of making condensed milk is extremely delicate and cannot be left to "locals." Curry was furious and left the meeting angrily. Amul started research and development and produced its own condensed milk two years later.
Verghese Curry. Photo: William Yardley/Wikimedia Commons, CC BY-SA 4.0
The government subsequently banned the import of condensed milk, and Nestlé eventually had to seek government permission to establish a condensed milk factory in India. Manubhai Shah insisted on Kurien's letter of introduction. Therefore, the management of Kreeber and Nestlé had to send troops to Anand. He was properly shown the condensed milk factory, and he apologized for the earlier incident. Cullien finally gave this letter. As the legend says, milk chocolate extraction technology and Nestlé's proprietary technology established a factory in Anand in exchange.
Nestlé represents the blue blood of the chocolate world. Although cocoa is the food of the gods, it has been consumed in liquid form in Latin America since the times of Aztec and Maya, but it is the milk chocolate bar that makes it accessible to everyone. In 1528, Spanish colonists brought chocolate from Mexico to Europe, and in the 1650s it spread across the continent to Britain. It took another 200 years and the Industrial Revolution to make the first chocolate bar. The JS Fry & Sons Company of Bristol, England made the first solid chocolate bar in 1847. In 1849, John Cadbury made his eponymous solid chocolate bar about 100 miles from Birmingham. It took another two and a half years to make milk chocolate, which makes the chocolate more delicious and easy to carry. This development took place in Vevey, Switzerland.
By the early 1800s, Vevey had also become the center of the chocolate factory. Francois-Louis Cailler opened a factory in 1820. Kohler opened a factory in 1830. Keller's son-in-law, Daniel Peter, opened the factory in 1867. Around the same time, his neighbor and friend Henri Nestle opened a baby milk business. In 1875, Henri Nestle participated in the development of Daniel Peter's milk chocolate, providing him with condensed milk.
In the end, the three of them—Cailler, Peter and Kohler—became part of Nestlé in 1929. Lindt first worked at Kohler's, then established his chocolate factory in 1879 and established his own brand. Jean Tobler, one of Lindt's original customers, opened his factory in 1899 and finally launched the "Toblerone". As a result, by the turn of the 19th century, the Swiss were leading the way in milk chocolate, thanks in large part to the booming dairy industry and Swiss dairy cows, the latter’s bell was later featured in the popular movie Dilwale Dulhania Le Aroused the imagination of Indians. Jiejie.
Cadbury did not produce milk chocolate until 1897. Its defining milk chocolate-Cadbury Milk Chocolate-came out in 1905. Frye merged with Cadbury in 1919. Elsewhere in Europe, Cocobari (France) and Callebaut (Belgium) entered the chocolate business in 1911, while Godiva started in Belgium in 1926.
Across the pond, Milton S. Hershey developed his own milk chocolate recipe and made Hershey chocolate bars in 1900. Frank Mars started his milk chocolate bar in the 1920s, and his son Forrest Sr founded M&M in 1940. Japan's Meiji introduced its 1926 milk chocolate.
In the absence of a confidentiality agreement at the time, because milk chocolate was an innovative product, these food technology startups relied on confidentiality and family relationships to prevent their recipes from being copied. As described in Roald Dahl's book Charlie and the Chocolate Factory, mutual surveillance is rampant. Even today, Ferrero (beginning in 1946) does not allow cameras or visits in his factory. More than a century later, these brands and companies continue to dominate the $106 billion chocolate market.
Table 1: Top 100 global confectionery companies in 2021
Source: 2020 Global Top 100 Companies
Like Ford, Facebook or Google, Nestlé’s success should be attributed to its location, timing, and management. Nestlé (founded in 1867) and Anglo-Swiss Condensed Milk Company (founded in 1866) were competitors in the baby food and condensed milk businesses and merged in 1905. In the same year, they added milk chocolate to their existing product line. After the First World War, women began to enter the labor market due to a shortage of men. Lactogen was introduced in 1921 to meet the feeding needs of babies who stayed at home. The Great Depression made Nestlé devote itself to another innovation: Nestlé instant coffee, launched in 1938.
During World War I, condensed milk was used as military rations, and during World War II it was used as chocolate and Nescafe coffee. This not only brought large orders for Nescafe, but also made the products popular worldwide. After World War II, the birth rate (baby boom generation) surged. This has led to a further increase in the consumption of infant food. By 1958, when Kreeber and Kurien met, Nestlé was already a multinational giant. The technique of competing for milk chocolate from this behemoth is a veritable coup.
Amul chocolate wrapping paper. Photo: Provided by the author
By the time of World War I, most imperial powers made chocolate without growing cocoa beans. They come from a colony and usually use slave labor. Although the colonial era is over, fairness and fairness in the chocolate trade still exist.
Even if the world consumes US$106 billion worth of chocolate each year, countries that produce cocoa will only receive US$8.6 billion—less than 10% of consumer dollars. In fact, 60% of the world's cocoa beans are produced in Ghana and Côte d'Ivoire. The farmers who grow cocoa beans there struggle with an income of $2 a day. They are too poor to eat the chocolate made from their crops. Approximately 80% of the world's cocoa comes from the top five producing countries and flows to Europe and North America. Inequality in trade is complicated by the presence of middlemen known as trade millers. Of the 4.6 million tons of cocoa produced annually, only three companies—Cargill, Oran, and Barry Callebaut—control 60% of the flow. Eight companies control more than 90% of them.
If Amul Chocolate fulfills its plan, it will become a shining beacon of fair trade and fairness in the chocolate world. India was originally a self-sufficient area in chocolate, and farmers owned the brand and received 80 paisa from consumers at Rs. Half a century later, the trend of fair trade chocolate appeared in the Western world. Kuapa Kokoo, a farmer’s cooperative in Ghana, holds a 20% stake in European brands such as Divine Chocolates, which represents a heart-warming move.
Amul launched Amul milk chocolate in 40g and 80g packages in 1973. It faced a lot of problems at first because the Swiss milk chocolate formula ensures that the chocolate melts at 35 degrees Celsius (the temperature of the human mouth). Taking into account the national average temperature, the product will melt before consumption. Amul tried to solve this problem by packaging chocolate in silver/gold foil. This was a pioneering move in the industry, but it did not bring the expected results. The cat teaches the tiger everything except how to climb trees. In 1982, the emergence of the Asian Games and Indian color TV also witnessed an unforgettable advertising campaign: "Amul Chocolate: A gift for your loved one!"
In the liberalized 90s, Amul management believed that if they wanted to take chocolate seriously, they should spin off the business into an independent company and appoint a young and energetic CEO to operate independently. People realize that the skills required for the chocolate business are completely different from those for the dairy business. They also plan to find an international partner for a joint venture to build marketing DNA and provide input support for farmers.
Around 1993, after evaluating various international players, Amul approached Hershey's. Hershey's is currently a $8 billion chocolate company because of their similar sensitivities. Milton Hershey not only pioneered milk chocolate in the United States, but also sold it at an affordable price for children to enjoy. The factory town of Hershey has many facilities, such as schools and amusement parks for workers and their children. Since he and his wife could not have their own children, they founded an industrial school for orphans in 1909. After the death of his wife in 1918, Hershey donated all his property to the Hershey School Trust Fund.
In addition to marketing and branding, the joint venture also aims to help farmers increase production and provide the company with new chocolate production technology.
But liberalization has left Amul with a deeper survival question about its core milk business. When farmers’ cooperatives enter India, can they compete with the behemoths of the dairy industry? Can it engage in a marketing-intensive chocolate war with the international chocolate giants at the same time? Amul's management believes that although dairy products are an indispensable part of India's agricultural income, they are not.
Amul made a strategic decision to no longer focus on the chocolate business, but to concentrate resources and management on dairy products. Therefore, Amul has not only gone out of the geographic environment of Gujarat, launched milk in major cities and cities in India, but also introduced value-added products such as ice cream, curd, flavored milk, and cream.
In a sense, Amur chose to lose the chocolate battle to win the dairy battle.
Today, the Indian chocolate market is consolidated-just like the rest of the world. The Indian retail market is worth 11,260 crore rupees, of which about 80% is occupied by four multinational companies-Mondelez (Cadbury), Nestlé, Ferrero and Mars. Amul's share is only 3%, while CAMPCO's share is about 2%. More than half of India's demand for cocoa beans is imported.
However, due to the lower than expected success rate, the cooperative movement has left its mark on the Indian cocoa sector. Over the past three decades, the price of Indian cocoa beans has averaged 5.2% higher than international prices. Indian farmers have also managed to get rid of the impact of the cocoa price plunge in 2016-17 and 1999-2000.
Source: www.dccd.gov.in; Cashew and Cocoa Development Agency, Ministry of Agriculture and Farmer Welfare, Government of India. The table in Annex 1.
Interestingly, Amul uses the art and technology of chocolate making to develop value-added products such as ice cream, milkshakes, syrups and flavored milk to meet the wishes of a generation of consumers. Today, Amul uses more cocoa products in its ice creams and beverages than chocolate. Amul continued to buy most of the demand from CAMPCO, which helped establish it in 1973, and later helped its factory to be established at a high price of 1 rupees. Amul chocolate-flavored milk reminded them of possible possibilities.
In the next ten years, it is inevitable that India's chocolate consumption will increase exponentially. India is also fortunate geographically to have areas where cocoa can be grown (20 degrees north and south of the equator). Now seems to be the right time for Amul to return to the chocolate business. May the power of Amul and the Indian government say: "I also have a dream!"
BM Vyas served as the managing director of GCMMF Ltd (Amul) from 1994 to 2010. He was also a member of the team that launched chocolate in 1973. Manu Kaushik is a management consultant and former senior director of GCMMF Ltd