Cash crunch slows down milk procurement in winter months

Liquidity crunch in the banking system has forced farmers to sell milk to unorganised sector players (even if it is at lower rates), thus slowing down the procurement growth during the flush winter months. Procurement growth, which traditionally grows by around 10 per cent during winter months, has slowed down to 2-3 per cent, say most players, including the country’s largest dairy cooperative, Gujarat Cooperative Milk Marketing Federation (GCMMF). 

The National Dairy Development Board (NDDB) informed that milk procurement by cooperatives in the country has gone up by about one per cent in November 2016 compared to same month in the previous year. The situation, however, is slightly better down south, where organised players claim to have switched to bank payments much earlier. 

Sample this: Sunil Patel, a dairy farmer from Nagara village in Anand district of Gujarat (the epicentre of the White Revolution), has just sold off his 100-odd milch animals farm, as it was getting difficult for him to buy green fodder for the animals with the liquidity crisis hitting him hard post demonetisation. Patel further adds that many farmers in his village are selling part of their milk produce to unorganised sector players (read local baniyas) in order to get cash payments. GCMMF is making payments through banks, and farmers who are as it is new to the banking system are not only overwhelmed with the process, but are also finding it difficult to withdraw money to meet their daily requirements. 

The liquidity crunch in the system that has lasted well beyond the initial 50-day period forecast by the government has forced farmers to opt for selling milk to local unorganised players for daily working capital requirements. Patel explained, “For my farm, I need around Rs 14-15 lakh every year only to buy green fodder. While the federation provides us cattlefeed, which is adjusted against payments made for milk, we have to source green fodder ourselves. When farmers started clamouring for cash payments, which runs into over a lakh every month, it became difficult to feed my animals.” He thus decided to sell the animals to multiple buyers, and claims to have made a loss of Rs 40 lakh on the deal. 

R S Sodhi, managing director of GCMMF, said that the process of transferring money to farmers’ account is very much on, and also said that the village milk mandali (society) head can take payments for farmers who do not have bank accounts as well and make payments to them individually. He, however, admitted that the procurement growth this year is around 2-3 per cent as opposed to the 10 per cent or so in other years. 

Several dairies under the GCMMF umbrella admitted that procurement is indeed in a slower lane this year. “The system of making payments to farmers’ bank accounts will benefit them in the long run. However, there are temporary difficulties. Most farmers did not have bank accounts, others did not have Aadhaar cards. Now they are queuing up for these and as such the district cooperative banks are short-staffed to handle this kind of pressure,” said the chairman of a dairy under GCMMF who did not wish to be quoted. He added that since cash withdrawal process is affected, thus farmers are selling their milk for Rs 38-40 a litre to local businessmen instead of selling to cooperatives who pay Rs 44 a litre on an average. 

Most dairies under GCMMF admitted that procurement has slowed down by around 5 per cent. 

On the other hand, NDDB said that overall procurement growth by cooperatives in the country was up by one per cent in November 2016. It did not share the December data. 

Dilip Rath, chairman, NDDB, said: “This measure of direct milk bill payment, for which Government of India has created a conducive environment, will go a long way in ensuring more transparency and at the same time achieve much needed financial inclusion of milk producers.”

However, even as the central government directed major milk production agencies like GCMMF, NDDB, et cetera to ensure that all dairy farmers opened bank accounts by December 30, so as to ensure cashless payments, the situation on the ground is that farmers themselves are reluctant to move out of the cash economy. There are around 170,000 dairy cooperative societies in India. 

Down South, the situation is slightly better, as dairy farmers have already adapted to the baking system there much before demonetisation forced the farmers in the west and north to adopt bank transactions.