Milk price rise: Dairy sector divided on cause

Co-ops blame incentives for milk powder export; private firms say state-supported entities inefficient in procurement

Private and cooperative dairy entities are holding each other to blame for the recent rise in prices of milk, in the midst of the year’s flush season.

Mother Dairy, one  of the biggest sellers of milk in north India has raised the milk, followed by private dairy company Gopaljee Ananda, in the middle of the flush season.

The private sector says the reason is inefficient procurement by state-run firms and cooperatives. The latter attribute it to the incentives given for export of skimmed milk powder (SMP). Mother Dairy, for instance, says incentivised export of SMP has pushed up the procurement cost of milk, forcing them to increase retail prices in a year when production is expected to be around 133 million tonnes, about the same as the record in 2012-13.

Mother Dairy raised its retail price of all milk variants by Rs 2 a litre in October 2013 and by a further Rs 2  a litre in the National Capital Region last week. Gopaljee Ananda, a leading milk company, raised its retail price by a similar amount on Tuesday.

Typically, supply of milk is at the highest in October-March. The period also provides a window for producers to purchase fresh milk and convert it into SMP for the lean season, which starts from April.

This year, officials said, the procurement price in north India has risen to Rs 35-40 a kg against the expected Rs 29-30 a kg, forcing them to raise retail rates. Last year during December-January, the price of milk in north India was Rs 25-26 a kg.

“All this is because of sharp increase in SMP exports. This year, we expect SMP exports to be 150,000-170,000 tonnes, much more than last year, which is why the procurement price is seeing a considerable increase,” said a senior official from a leading north India-based state-run dairy.

He said the five per cent export incentive announced by the government in February 2013 should be immediately withdrawn, as it is encouraging private companies to procure milk at higher prices.

Contesting the view, Kuldeep Saluja, managing director of Sterling Agro Industries, makers of the Nova brand of milk, said India will become a net importer if companies hesitate in paying a good price to farmers. For, domestic production is growing annually at four to five per cent, while demand for milk is rising in the country at 10-11 per cent a year.

“It is solely because of inefficiency of some state-run companies that they are paying a higher price for milk and feeling the pinch,” he said.

Good SMP exports, held Saluja, have helped farmers get a fair price; else, prices would have dropped to around Rs 16 a kg in the flush season. “State-run companies should have purchased milk in June and July and not in November and December. More, milk procurement prices increase almost Rs 4 a kg every year in north India and 2013-14 is no different,” he added.

R G Chandramogan, chairman of Hatsun Agro Products Ltd, said it was a false notion that SMP exports were pushing up milk procurement prices. Exports, he said, were only 0.6 per cent of the country’s total milk production, 133 million tonnes in 2013-14.

“The increase in procurement price is mainly due to the high fodder cost for the farmer. Inflation in all items has seen an increase in 2013-14 and milk is no different,” said Chandramogan. He said if export incentives were withdrawn for SMP, normal growth in India’s annual milk output might suffer.