The Gujarat Cooperative Milk Marketing Federation, which sells its dairy products under the brand name Amul, plans to raise the price of whole milk by Rs 2 per litre starting Friday. Amul meets about a quarter of Delhi’s milk demand. Mother Dairy, the top milk supplier to the capital, may follow suit.
For a country groaning under the price rise of staple foods, the hike in the price of milk may seem unbearable.
But the worst is yet to come. Some experts warn that, come summer, Delhi may face a milk crisis, with prices rising up to Rs 40 per litre (today full fat milk sells for Rs 28). Other parts of northern India could see a similar shortage.
Mother Dairy alone faces a daily supply gap of 500,000-600,000 litres, industry insiders say.
“There is a gap of 18 lakh tonnes between demand and the current milk supply,” said Union Agriculture Minister Sharad Pawar at a recent meeting.
Pawar, however, did not explain how such a huge gap between demand and supply came about in the world’s largest milk producing country.
India’s farmers produced 108.5 million tonnes of milk last year, about a sixth of the world’s production, according to the Food and Agriculture Organisation of the United Nations.
But the majority of India’s milk is processed informally. The prices that farmers receive vary from state to state and even within states, leading to gaps between how much milk is produced and how much reaches consumers.
Also as the Indian middle class grows, so does the demand for cheese, chocolate and specialty dairy products.
No ceiling for milk prices
“In early 2001, India’s milk price was one of the lowest in the world, partly because of the low cost of family farm labour,” said Brajesh Jha, an analyst at the Institute for Economic Growth, a Delhi-based think-tank. “(But) As pressure on labour increases, milk prices are going up.”
The costs of labour, transportation and cattle feed — the main inputs in dairy farming — have gone up nearly every year. Last year, a poor monsoon led to a spike in the price of cattle feed, a problem exacerbated by a government policy that allows for the export of cattle feed, even in times of shortage.
“Feed prices went from Rs 10 per kg to Rs 40 (after insufficient rain),” said Jaswinder Sinder Bhatti, technical coordinator of Punjab’s Progressive Dairy Farmers Association. “That’s why farmers are asking for a higher milk price.”
A farmer spends as much as Rs 15 to produce one litre of milk, according to O.S. Parmar, dean of the college of dairy science and technology at Guru Angad Dev Veterinary and Animal Sciences University.
This means farmers must get about Rs 15 per litre of milk in order to be competitive. But they don’t always get that price.
In Gujarat, farmers who sell to the local cooperative get about Rs 21 per litre of milk. The Gujarat Cooperative Milk Marketing Federation buys about 35 per cent of the milk produced in the state.
In Uttar Pradesh, however, the cooperative buys only 2 per cent of the milk produced in the state.
Since Delhi has little dairy land of its own, Mother Dairy sources its milk from a loose network of contractors and cooperatives.
Sources say Mother Dairy offers Rs 23 per litre of milk, but there is no knowing how much of this money makes it back to the farm.
Not minding the gap
If the milk produced in north India isn’t coming to Delhi, where is it going? An increasing amount is going abroad.
India has become one of the world’s biggest exporters of casein, a dried milk protein used in everything from cheese to paint.
Almost all of the world’s casein is bought by the US and Europe.
Casein is an emerging commodity, but a 2005 report estimated its worldwide market to be between 350,000 and 430,000 tonnes annually.
Since casein sells for about $7,200 per tonne, the market is estimated to be between $2.52 billion and $ 3.24 billion (Rs 11, 729 crore and Rs 15,163 crore) annually.
Between August and December 2009, India exported 6,680 tonnes casein powder.
It takes about 35 litres of milk to make one kg casein, which means 233 million litres of milk went into casein in that five-month period.
Because casein sells for a high price and manufactures enjoy a 9 per cent export incentive, casein makers can afford to pay contractors a better price for milk, diverting supplies that might have gone to cooperatives. “They pay five or six rupees extra for every litre of milk,” said a source at one of India’s biggest dairies.
“If makers of these value-added products buy milk at a higher price because they can sell at a higher price, there is no doubt that this will raise the liquid milk price,” said Parmar.
To ban or not to ban
Some states such as Bihar and a number of private dairies have suggested banning casein exports. But “banning exports creates a lot of market uncertainty”, said Jha.
Momentum is also building for lowering duties on dairy product imports.
Importing milk powder might ease the short-term shortage, but it could also damage Indian producers, who don’t enjoy the same economies of scale as multinationals.
In absence of a long-term plan for the dairy sector, the coming milk crisis will soon hit households in Delhi —and beyond.