Diesel price hike: Milk production cost set to rise

The recently effected hike in diesel price by Rs  5 a litre is going to increase the production cost of milk prices across the country as transportation plays a crucial role in the supply and distribution of milk. Dairies, both private and co-operative, estimate a rise in milk production ranging from 30 paise to 80 paise per litre.

Although there will be pressure on dairies to increase retail milk prices, most of them are against passing on the burden to end consumers, as of now.  Transportation of milk is a key component in dairying business. Sample this: Surat-based Sumul Dairy, a member of Gujarat Co-operative Milk Marketing Federation (GCMMF), deploys 150 trucks to transport milk from collection center to chilling stations and 40 tankers for bringing milk to dairy from chilling centers for processing.

After that, as many as 130 insulated vehicles are used to distribute packaged milk. Interestingly, the entire supply chain uses these diesel vehicles twice a day. In addition, around 40 vehicles carrying veterinary doctors visit various villages every day. Apart from this, 30 trucks used for supplying cattle feed to farmers daily.

"Considering all these factors, there will be additional burden of around 80 paisa per litre in milk production following hike in diesel prices," said Sumul dairy managing director, Jayesh Desai. It may be mentioned here that Sumul dairy produces 0.9 million litres milk per day.

India's largest milk cooperative, GCMMF, plies over 1,200 trucks daily for milk procurement. It procures 12.5 million litres of milk daily while sells about 8 million litres per day.

"The increase in diesel prices is definitely going to impact both milk prices and farmers," added Parthi Bhatol, chairman, Banas Dairy. Bhatol is also a former chairman of GCMMF, which owns and markets Amul brand of milk and milk products in India.

Milk distribution companies operational in the northern parts of the country are no exception. At 1.5 million litres per day of daily milk procurement, private sector Paras Dairy fears at least 5-10 per cent impact on its overall transportation cost due to diesel price hike.

"There is a three-layer impact of diesel price hike on milk transportation. One is from village to chilling station, then chilling station to processing plant and from plant to retail outlet. Also, we use diesel as a backup to run generators in the event of a power cut," said Rajender Singh, managind director of the Paras Dairy. "There is going to be a big impact on cost due to diesel price hike. Our cost would increase anywhere between 30-40 paise per litre of milk. But we are not planning any immediate milk price hike as we did it last week only. In the long run we have no option but to either pass-on the cost burden to consumers or cut farmers' payments," said Singh. Paras Dairy sells over 200,000 litres of milk every day to Delhi and NCR region.

Agreeing to other dairies on production cost escalation, RG Chandramogan, chairman and managing director of Chennai-based Hatsun Agro Product Ltd, opined that there would be an additional burden of 30-50 paise per litre in milk production cost. "However, the impact of diesel price hike on milk production would be around 1 per cent of the retail milk prices. We will first see, if we can absorb the burden or not. As of now, we have not yet decided to increase the prices of milk to end users," he added.

"We have not yet calculated the impact of diesel price hike on our costs. But at present we have no plans to  increase the milk prices," said R S Sodhi, MD, GCMMF.

According to experts, the dairies will either have to raise prices of milk or they will have to lower the remuneration that they pay to farmers.