Aavin pays out of pocket as TN govt yet to approve milk price hike

Citing fund crunch and escalating debts, the state government has asked Aavin to independently handle the additional expenses owing to a hike in milk procurement prices by Rs 3 per litre since December 18. Aavin, which has been grappling with fund shortage, requires Rs 27-Rs 28 crore a month (Rs 325 crore a year) to pay dairy farmers. The financial strain was blamed on its lower selling price, which is Rs 12-Rs 14 a litre cheaper than private brands.

According to highly placed sources, out of 30 lakh litres procured by village-level primary cooperative societies, four lakh litres were locally sold with instructions to collect the additional amount from buyers. Aavin has opted to cover the extra payment for the remaining 26 lakh, thereby reducing the federation’s monthly expenses to Rs 23 crore.

Although the official announcement was made on December 13, a government order giving effect to this decision is still pending. The delay was attributed to the finance department, which did not favour the proposal, citing a huge financial burden on the state exchequer, multiple sources told TNIE.

Aavin MD S Vineeth said that the government will reimburse the funds whenever the federation requires it, clarifying that they are currently managing expenses using their funds. “We have sufficient funds to effectively implement the price hike and the government will reimburse us whenever the federation requires it.”

The payment for the enhanced rate will be disbursed to dairy farmers on a monthly basis and there is no delay in putting the price hike into effect, added Vineeth.

At present, dairy farmers delivering milk to village-level cooperative societies receive payment every 10 days. The Tamil Nadu Cooperative Milk Producers Federation, the owner of Aavin, has been reeling under financial crisis for the past two years. To cut expenses, Aavin reduced the supply of Green Magic milk (4.5% fat) by 70% in the retail market two months back and introduced Aavin Delite cow milk (3.5% fat), which has a lower production cost due to its reduced fat content.

A section of dairy farmers said the decision to hike the selling price of (unpackaged) milk sold in rural areas will render the cooperative societies unsustainable in the long term, making them less appealing for milk suppliers due to the potential impact on their yearly bonuses and other benefits.

“The federation’s milk procurement is expected to rise in the coming months, leading to increased expenses. The funds of Aavin belong to dairy farmers and societies, not the government. If the government does not provide compensation, the operation of the federation (Aavin) will face imminent collapse,” a Salem-based dairy farmer said.