Protein based milk pricing

“Carpentras, a village in southeastern France, which shortly held the country’s all-time heat record of 44.3 degrees on last Friday. The record was topped again later in the afternoon in the southern village of Villevieille, 100 kilometers (60 miles) to the east, which measured a thermometer-busting 45.1 degrees Celsius (113 Fahrenheit).” Same is true with Germany and other parts of Europe also.

India had the driest June in five years, says IMD as monsoons got delayed; country stares at another agricultural crisis. If the rains don’t improve over the next two to three weeks, India could be facing a crisis that hammers harvests and rural demand.

Last fortnight most of the news were about hike in milk prices by various federations . Still milk availability looked a bit difficult. 

Fonterra on other hand had a great launch at Mumbai with range of milk products like Toned milk in UHT. They also launched Dahi and flavored milk in aseptic packs.  Mr Kishore Biyani from Big Bazaar also attended the launch. The team shared their dream of making “Dreamery” a 6000 crore brand in around 5 years.

A group of Dairies in Maharashtra also launched their drive to collect back the used pouches so as to toe the line with Maharashtra state government directive to do so. It would be a great opportunity for the dairy industry on pan India basis to learn from this experiment and later implement it with needed corrections .

Milk pricing system in India

Now let us look at the milk pricing mechanism prevailing in Indian dairy industry. For most part of the country, it is based on Fat and later converted into double axis for rate computation purposes. Milk pricing is done on total solids basis in cow belt areas and then divided into Fat and SNF rates

Value added products or the functional foods are the first priority of Indian dairy industry now. The single most important reason for anyone buying milk is to meet the body’s protein requirements. Protein, microbial load and somatic cell counts are the key parameters of milk purchase in most of developed countries.

Organised sector in India has not given much importance to Protein in milk pricing. Solids Not fat or SNF is a measure of protein in milk . As per regulatory protein may not be less than 35% of total SNF. Most of the adulteration in India is happening by negotiating with the SNF. Normally, sugar, maltodextrin, glucose, salt etc are added in milk to increase SNF.

Replacement of protein in milk by aggregator is a costly as well as risky affair as most of plant protein isolates are not of edible nature. Fat based pricing is acting more as a discriminator of animal species. Farmers manipulate the fat content of milk by using some types of feed and feed additives irrespective of their impact on animal health.

I would like to give an example of stainless steel. Now the pricing of stainless steel is not on the basis of its iron content rather than it is on the basis of Nickel content. Higher the Nickel content, higher the price. On similar lines , now the time has come for the industry to decide on which is the Nickel component of milk ; Fat, Protein or SNF.

Out of the box options for milk pricing

The government has already denied any plans to have MSP for milk.  Under those circumstances the industry could start finding newer ways of setting the milk price so as to make this business sustainable. A few of the possibilities may be summarized as follows :

a. The government may impose differential pricing on cow milk. Desi cow milk could be priced at a higher levels than other types of milk . It is to be done if the govt is really serious promoting desi cow rearing. However it would require a huge investment by the government for creating testing facilities for DNA identification)

b. Milk price may be fixed on two axis of fat and protein (as this ratio might be a constant) . This way the intermediaries  do not gain anything by increasing SNF using adulterants.

c. Setting price on Channa production which also indirectly considers fat+protein and leave lactose  and ash aside while pricing.

d.  Fat based pricing may be calibrated in a way that above 5% fat the fat rates get lowered. This will enable farmers to focus on reasonable levels of fat and higher levels of protein.

e. The regulator may also bring in Protein as one of the component mandatory while selling milk in labelingAt least a minimum level may be set for the purpose.

The way forward

These are just food for thoughts to take this discussion further. Sooner or later we may have to review the pricing mechanism . It is to be done so as to make this industry a sustainable  venture for all the stakeholders .

Even government subsidy may also be more directed towards the input (feed, fodder, medicines, etc) and  the qualitative output ( protein,SCC, etc) but never for  the quantitative output only. Praying god to bless our country and the world with much needed rains and thus respite from heat and hunger.  

Blog written by Kuldeep Sharma and posted in Dairy Pulse on 1st July , 2019