Rising input costs send wholesale milk prices up 10.2% in flush season

India is in the middle of the flush season for milk production which runs from October to March. Wholesale milk prices increased 10.2 percent on-year in December 2022 against a marginal rise in general month-on-month wholesale prices at 0.6 percent, according to a report by ICCI.

Various factors such as the onset of the lumpy skin disease in cattle and a fodder shortage have raised the input costs for milk production which in turn has increased the cost of milk and dairy products.

Rising temperatures, shifting focus 

A warm Rabi season led to a drop in the production of wheat this year. The demand for maize from ethanol and starch makers and the trend of growing cereals led to a shortage in the production of wheat and maize which are used as fodder. According to a report by the Business Standard which cited industry experts, a rise in the price of wheat led to farmers underfeeding cattle which in turn contributed to a drop in per-animal milk production in this flush season.

A report by ICRA predicts a contraction in the operating profit margins of Indian dairy companies in FY2023 due to cost-side pressures as feed and fodder prices account for 70-80 percent of the milk production costs.

Parshottam Rupala the Fisheries, Animal Husbandry and Dairying Minister gave a written reply in the Parliament regarding the rise in fodder prices and said that the ICAR-Indian Grassland and Fodder Research Institute (IGFRI) in Jhansi estimates that there were deficits of 11.24 percent, 23.4 percent and 28.9 percent in green fodder, dry fodder and concentrates, respectively. The deficit has worsened this year.

Stocking Struggles 

A bearish start to the flush season has led many to believe that a shortage of milk products is likely in the months to come. In the light of the situation dairy companies are trying to stockpile their inventories, however this is happening at appreciably higher prices than before.

India is the world’s largest milk producer with an annual output of 210 million tonnes. It has a cattle count of about 200 million, according to a report by Moneycontrol. India has 30,000-40,000 tonnes of Skimmed Milk Product(SMP )stocks; they need to be around 250,000 tonnes by March to ensure adequate milk supplies in the lean months, Business Standard  said in its report citing industry sources.

“Milk procurement during peak season of July-October was observed lower by 6-7 percent on a year-on-year basis mainly because of poor milk yield on account of lumpy skin disease and higher fodder prices,” Pushan Sharma, director of research at CRISIL Market Intelligence and Analytics, told Moneycontrol earlier this month.

Sanjeev Balyan, minister of state for fisheries, animal husbandry and dairying dismissed the likelihood of a dairy shortage and said, “There is no shortage of milk anywhere and prices are high only due to increase in fodder cost”.

Lumpy Skin Disease 

The lumpy skin disease was first detected in India in 2019 and a major outbreak occurred  in July 2022. Since then the Centre and state governments have strived to control the outbreak via vaccinations.

The disease has claimed the lives of over 60,000 animals, according to data for September, the latest that is available, the disease severely affects the milk-producing ability of cattle.Rahul Kumar  the managing director at Lactalis India, a subsidiary of the French dairy conglomerate Lactalis told the Business Standard that the “Lumpy skin disease is largely prevalent among indigenous cow varieties, which anyway have very low per-animal yield. So, even if we assume that 200,000 cows might have died due to the disease, the per-day production would have gone down by 0.5 million litres and we produce 550 million litres of milk daily. Therefore, the impact is negligible”.