After steep hike, milk prices likely to stabilise in 2021: Crisil

Milk prices, which have risen by Rs 4-5 per litre over the past nine months, are likely to stabilise in 2020-21 as production is expected to pick up due to abundant water availability and anticipated normal monsoon, according to a report.

Production of milk has been shrinking since April last year due to high summer temperatures and lower availability of water, made worse by delay in rainfall, ratings agency Crisil said in the report.This was followed by floods in various parts of the country, leading to poor animal health.

Also, water logging in green pastures kept animals from grazing and damage to crops such as maize and sugarcane, which are used for fodder, crimped fodder availability, leading to lower milk production in the country, it added.

This fiscal, milk production is expected to be lower by 5-6 per cent year-on-year at 176 million tonnes. The flush season that usually begins in November-December is estimated to have shifted by 1-2 months because of the delayed monsoon.

Crisil said milk prices began moving up in May 2019, with Gujarat Cooperative Milk Marketing Federation (GCMMF, better known as Amul) and Mother Dairy hiking the maximum retail price of their full-cream milk pouches by Rs 2 per litre.

The two giants followed this up with a further hike of Rs 2 and Rs 3 per litre, respectively, in December, taking it to Rs 55 per litre.

Other large dairy processors have started following suit, spurred by the shortfall in milk production around the country, and thereby supply.

However, Crisil said milk production is expected to pick up in 2020-21, given abundant water in reservoirs and expectations of a normal monsoon.

That should arrest any further rise in milk procurement and retail prices. Further, rabi sowing area had increased 10 per cent as on January 31, 2020.

This is expected to lead to a 12 per cent increase in crop production for the season and higher arrivals of key crops such as wheat, bajra, jowar and maize from March would mean copious fodder availability, which should raise milk production next fiscal, the report said.

This is expected to stabilise milk procurement costs, bolstering the operating margins of dairy processors. So, milk prices are not expected to rise any further in the coming few quarters, unless monsoons spoil the game for processors, it added.