Extreme weather spiked animal fodder prices, now stokes milk prices
An immediate trigger for this round of milk price hike is an increase in animal fodder prices, which has become scarce following heavy rains during the August-September period, said an official of the Gujarat Cooperative Milk Marketing Federation, which markets the brand Amul.Updated: Dec 16, 2019 13:31 IST
On December 14, India’s largest dairy brand, Amul, announced a Rs 2 a litre hike in consumer milk prices. This was followed by its next biggest competitor, Mother Dairy increasing rates by up to Rs 3 per litre in the national capital region.
Industry experts attributed the increase to a usual reason: a rise in procurement costs, which denote the prices at which these brands buys from farmers under the country’s cooperative dairy trade model. This is the second time this year that milk prices have seen marginal increases.
An immediate trigger for this round of milk price hike is an increase in animal fodder prices, which has become scarce following heavy rains during the August-September period, said an official of the Gujarat Cooperative Milk Marketing Federation, which markets the brand Amul.
Effects of a late surge in the monsoon, now being felt in the dairy sector, have delayed the start of the so-called ‘flush milk season’, which refers to the winter months when milk availability generally goes up and prices remain stable.
The hike is likely to add further to India’s food inflation, which has shot up in recent months. Overall consumer price inflation rose to its highest in nearly three years in November, mainly led by a rise in prices of vegetables, such as onions, according to latest official data. The Consumer Price Index inflation spiked to 5.54% in November 2019 compared to a 4.62% rise in October. The data showed retail food inflation surged 10% in November compared to a 7.89% increase in the previous month.
Over a year ago, in August 2018, livestock farmers poured gallons of fresh milk on to streets to protest falling prices. Prices hardening now signal a cut in output and increase in cost of inputs, such as feed and fodder.
These swings are a sign that even the lucrative dairy sector is battling a crisis. In 2018, the picture was starkly different. Plunging raw milk prices had angered farmers already battered by lower crop prices. Milk faced the same fate as several other commodities: a domestic glut and declining exports, data showed.
Milk procurement prices, or the price at which mid-level aggregators in the supply chain buy from farmers before selling to dairies, had fallen 20-25% last year, according to S. Daljit Singh of All India Progressive Dairy Farmers Association.
Part of the problem is an unprecedented spurt in milk output in India, the world’s largest producer. In the past four years, output has grown by over 6% every year. Production was 165.4 million tonne during 2016-17. In 2017-18, it was estimated to be 176.35 million tonne, a 6.5% annual jump.
The crisis lay squarely in the skimmed milk-powder segment, rather than in liquid milk. The powdered variety is India’s main export item, while most of the liquid milk is domestically consumed.
A slump in global prices of skimmed milk powder last year hit India’s exports, resulting in a surplus domestic stockpile of 200,000 tonne of milk powder, according to RG Chandramogan, chairman and managing director of Hatsun Agro Product Ltd.
A rebound in prices and corrections in some global markets are some of the reasons for the increase in domestic procurement prices of milk.
Both the dairy majors – Amul and Mother Dairy –said they pass on 80% of the sales revenue from consumer liquid milk to dairy farmers. In a statement, Amul said: “This year the price of cattle feed has increased by more than 35 per cent. Considering increase in cattle feed and other input costs, our member unions have increased milk procurement price in the range of Rs 100-110 per kg fat which is more than 15 per cent increase than the last year for the 36 lakh milk producers of Gujarat.”
Trade in India’s dairy sector is far more transparent than in others. A firming up of India’s milk prices should help boost farmers’ income who are part of the cooperative model.