Skimming over milk

Too much milk should not cause government action

Policy makers should not overreact to the milk glut in India, since this has largely been caused by poorly advised government policy in the first place. The accumulation of surplus stocks of skimmed milk powder (SMP) is the consequence of the government’s two ill-timed decisions two years ago as a panicked reaction to the protein-driven high food inflation — banning the export of milk products and simultaneously ordering import of SMP. These coincided with a rebound in domestic milk output after a post-2009 drought dip. To confound matters, the lifting of the export ban was delayed, for inexplicable reasons, till global prices had nosedived — making exports unviable. The dairy industry, too, erred: it mistimed increases in the consumer prices of liquid milk. This prevented a rise in sales in the wake of comfortable availability and resulted in a drop in the price paid to milk producers. Though the pinch of the surplus and heavy inventories is being felt by the dairy industry in most milk-surplus states, the worst affected is Andhra Pradesh. The state government went to the extent of mooting a “milk holiday”, which would involve the stoppage of milk purchases for a few days every month. The proposal, predictably, had to be shelved owing to the outcry against it from various quarters, including milk producers, who would have had to throw the milk down the drain.

India’s milk sector has seen decades of healthy growth, and the country is now the world’s largest milk producer. Milk is now India’s biggest agricultural product, overtaking rice and wheat in terms of value. Unsurprisingly, nearly one-third of rural income now comes from the livestock sector. As such, animal husbandry has become the mainstay of Indian agriculture, providing farmers with much-needed livelihood and income support when crops fail due to drought or other reasons. If the current milk deluge is allowed to harm the interest of milk producers by reducing milk procurement and slashing procurement prices to unremunerative levels, it is bound to prove counterproductive in the longer run. SMP stocks, in any case, should not be viewed as a burden since these will come in handy to maintain the liquid (reconstituted) milk supplies next year during the summer, when animals’ milk yield usually declines.

Thus, what is needed to cope with the current surplus is to boost domestic milk offtake, for which there is considerable scope. Also, one should wait for the export market to turn lucrative, which seems likely soon, given that global prices have already begun to firm up. The local consumption of milk and milk products can, obviously, be stepped up if the industry shares the gains from softening milk procurement prices with consumers. Besides, new outlets, too, can be found for milk by introducing it in the government’s welfare schemes such as the mid-day meal scheme. But the most vital is the need for the government to put in place stable import and export policies and refrain from unwarranted interventions in the milk market. Past mistakes should not be repeated.