Milk prices unlikely to go up until Diwali as production increases
Dairy sector experts have ruled out further milk price hikes – at least till Diwali – because of a sudden increase in production due to an unusually cool summer this year.
Meenesh Shah, chairman of the National Dairy Development Board, told Moneycontrol that retail prices of milk have actually fallen by up to Rs 2 per litre in Maharashtra in recent weeks. “Procurement of milk has been very good in March and April. We do not expect any further increase in retail prices of milk now, not till at least Diwali this year,” Shah said.
The pause marks a dramatic shift in the inflation narrative when it comes to retail prices of milk. Domestic retail prices of milk have climbed by about 15 percent in as many months, since milk production in 2022 was estimated to be at the previous year’s level of about 220 million tonnes, and input costs for farmers rose simultaneously.
RS Sodhi, president of the Indian Dairy Association and former MD of Amul, said there is also no need for India to import milk in the near future. “No imports of milk have happened till now since the domestic supply situation has already normalised. International and Indian prices of skimmed milk powder are at par at zero duty, so imports would have anyway been a costly affair,” Sodhi said.
BC Satish, MD of the Karnataka Milk Federation, said milk procurement in the state increased to 8.7 million litres a day in the flush season – when milk supply is higher – from 7.3 million litres a day earlier.
The federation hasn’t increased retail prices since November 2022, when they went up to Rs 39 per litre from Rs 37 per litre. He too does not expect prices to increase for the next few months.
The rise in milk prices had taken on political overtones, with opposition parties suggesting the country was headed for a crisis and criticising the Gujarat Co-operative Milk Marketing Federation (GCMMF), which owns the Amul brand, for trying to extend its market dominance by entering other states.
Jairam Ramesh, general secretary in charge of communications for the Congress party, tweeted last week that “India is on the brink of a milk crisis which is resulting in high levels of inflation and causing further pain to dairy farmers, who are already struggling with rising prices of fodder. As a result of this crisis which has lingered since the COVID pandemic, the largest milk producer in world is now forced to import milk and milk products from other countries. What is the Modi government doing in the midst of this crisis? Pitting one cooperative against the other in an attempt to benefit their electoral outcomes.”
Shah said milk procurement was 7.5 percent higher in April from a year earlier. Enhanced purchases have meant stocks of skimmed milk powder and white butter are higher and this will ensure adequate supplies for the lean season.
The Reserve Bank of India’s Monetary Policy Committee (RBI MPC) said last week that the consumer price inflation trajectory will likely be driven by food prices. “Wheat prices could see some correction on robust mandi arrivals and procurement. Milk prices, on the other hand, are likely to remain under pressure due to supply shortfalls and high fodder costs,” the committee said.
Sodhi of NDA said input costs for farmers are falling. Last year, input costs had risen by up to 25 percent on fodder and 20 percent on cattle feed. “Over the last two months, these prices have also started stabilising. Feed prices are under control now,” he said.
The background
India’s “cow economy” has been in a difficult phase for much of 2022 and the first few months of 2023 due to several factors: the impact of COVID-19 on the dairy supply chain, disruption of breeding programmes due to the pandemic, and the lumpy skin disease epidemic last year that killed lakhs of cows.
Milk production has been robust in the past decade, though. As per data from the Department of Animal Husbandry and Dairying, India’s milk output in the 10 years FY22 jumped from 127.9 million tonnes to 221.06 million tonnes.
However, year-on-year (YoY) growth in milk production eased to 5.29 percent in FY22 from well over 6 percent in FY15. Though there are no official figures for FY23, production likely stagnated at the previous year’s level.
In any case, India’s milk production is nowhere near the government’s target. According to the 2021-22 National Action Plan for Dairy Development put out by the Department of Animal Husbandry and Dairying, the target for FY24 was 300 million tonnes of milk to meet increasing demand, ensure nutritional security at the household level and support exports of milk and milk products.
This would have meant a CAGR of 8.56 percent in milk production and an increase in per capita availability of milk to 592 grams per day in FY24 from 337 grams per day. The plan also envisaged an increase in organised milk handling from 20 percent to 50 percent by FY24. Milk handling by cooperative dairies was to double to 20 percent.
The Indian dairy industry remains fragmented, with only about a fourth of the milk produced marketed by organised entities.
To enhance milk output, India must focus on rapid growth in the cattle population and provide incentives to farmers to rear cattle, including attractive pricing for milk. Also needed are investments in modern machinery and cold-chain infrastructure.