One Chennai dairy shows the way: Farmers paid via bank transfers

While countless businesses across India have faced problems after demonetisation, leading to spate of payment defaults, Hatsun Agro's 3.1 lakh farmers have received payments against milk supplies without any issues through bank transfers.

Written by Harish Damodaran | New Delhi | Updated: November 17, 2016 12:52 pm
demonetisation, chennai dairy, account transfer, salaries stopped, dairy salary paid, Hatsun Agro Product Ltd, milk supplier, cashless economy, dairy company, indian express news, india news The company sells its milk, curd, ice-cream and other products through its 2,500-odd ‘Hatsun Daily’ retail-cum-distribution points. (Representational image)

NOVEMBER 12 was pay day for the 3.10 lakh farmers who supplied milk to Hatsun Agro Product Ltd in the first 10 days of this month. Each of them received their due-day sums, which the Chennai-based dairy company credited directly into their bank accounts.

While countless businesses across India faced problems after Prime Minister Narendra Modi announced demonetisation of Rs 500 and Rs 1,000 notes on November 8, leading to a spate of payment defaults, R G Chandramogan, chairman of Hatsun Agro which has a turnover of Rs 3,444.59 crore, says he and his farmers “slept peacefully”.

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His company procures about 28 lakh litres per day (LLPD) of milk, which, at an average of Rs 26 per litre, translates into daily payments of about Rs 7.3 crore.

“We have 9,800 centres from which milk is collected, with each farmer supplying an average of 9 litres per day. We make payments for the milk procured during the first 10 days of the month on the 12th, for the next 10 days on the 22nd, and for the last 10/11 days on the 1st of the following month. All this money is transferred directly to farmers’ bank accounts, against daily invoices of the quantity of milk supplied and the price corresponding to its fat and solids-not-fat (SNF) content,” says Chandramogan.

According to him, the demonetisation announcement had minimal impact on Hatsun. “For us, it was business as usual. We made payments to our farmers aggregating nearly Rs 75 crore on November 12, as per our regular schedule,” he says.

There was no effect on sales either. The company sells its milk, curd, ice-cream and other products through its 2,500-odd ‘Hatsun Daily’ retail-cum-distribution points. The sales collections are also credited to Hatsun’s bank account on a daily basis. “Whether it is farmers, distributors, transporters or employees, we don’t make or take payments in cash. Everything is via bank transfers,” says Chandramogan.

Within this entire chain, the move to make payments to farmers’ bank accounts was the real challenge in the beginning. Even the district-level dairy unions affiliated to the Gujarat Cooperative Milk Marketing Federation (Amul) currently limit bank transfers to the accounts of primary village societies, which, in turn, pay their farmers in cash.

“We wanted to go a step ahead and reach farmers directly. We began the exercise in October 2013 and by 2014-end, 90 per cent of our farmers were covered. Initially, they were reluctant, being used to getting cash. But we were firm with them, because it was a logistical nightmare to arrange for cash and transport this to each of our 9,800 procurement centres. And it was even more difficult to make exact payments to each farmer against varying volumes and fat/SNF content of milk supplied,” says Chandramogan.

But when farmers saw money actually coming to their bank accounts, the situation changed. A farmer supplying nine litres daily at Rs 26 per litre would get Rs 2,340 credited to his account every 10 days. “All of a sudden, he became creditworthy in the eyes of the bank, which now saw him as a customer to be wooed. Our farmers aren’t regretting the move to direct bank transfers, especially today with the demonetisation decision and cash disappearing from the system,” he says.

While Amul is now forcing its dairy unions — which disburse around Rs 450 crore per week to 18,500 village societies — to put in place systems enabling direct transfers to farmers’ accounts, Hatsun Agro can take credit for doing this before any other dairy or food processing concern.