Sweating over milk: India stares at supply crunch as summer sets in

Industry asks government to consider imports as the season of abundant stocks fails this year

Dairy cooperative Amul hiked over the weekend the retail price of milk in Gujarat after taking a similar step in other regions earlier.

Milk prices in India have increased by 12-15 per cent in the last 15 months and experts say the hikes won’t stop before September-October 2023. Milk inflation has increased from 5.55 per cent in September 2022 to 10.33 per cent in February 2023. Inflation for other food items has decreased during the same period.

A survey done by Local Circles, a community social media platform, some months back found that four out of 10 Indian households are pinched by high milk prices.

Almost 59 per cent of the households told the survey they are paying more for the same quantity of milk sold by their preferred brands. As many as 19 per cent households said they have reduced milk consumption due to high prices.

Around 16 per cent of the respondents accepted they had switched to cheaper alternatives of the same brand.

Around three percent of the respondents said they have switched to buying milk from a local source and an equal number of people said they have stopped buying milk. To ease the impact of price rise, some state milk cooperatives recently lowered the size of milk pouches.

Scarce season for milk

After high fodder and feed rates, the other big reason for milk becoming expensive is the scarce flush season this year. It is the season, usually running October to March, and characterised by abundant milk supply and low prices.

In this season, dairy companies and cooperatives convert liquid milk into skimmed milk powder (SMP) and butter for use during lean months of April to September.

Summer in North India is delayed this year due to an unusually wet March that pushed up milk prices. North India milk has a fat content, of around 6-7 per cent, than in west India (5-6 per cent) and south India (3.5-4 per cent). Higher fat content helps in better conversion for butter oil and ghee.

India annually produces around 300,000 tonnes of SMP and 100,000 tonnes of butter, according to trade and industry players. Of this, around 60-70 per cent is manufactured during the flush season.

This year there is not enough for companies to make SMP, butter or ghee.

In the milk business, almost 80 per cent of the price the consumer pays goes for procurement from farmers. Feed and fodder prices comprise 70-80 per cent of milk production.

Industry players said that due to poor liquid milk supplies the country has SMP stocks of around 70,000-80,000 tonnes compared to the requirement of 200,000-250,000 tonnes. Against a requirement of 100,000 tonnes of butter oil, just around 10,000-20,000 tonnes was made in the flush season.

When summer sets in fully and liquid milk supplies go down, India might not have adequate SMP and butter oil stocks to convert into liquid milk.

“High fodder rates and low price of milk a few years back meant that farmers underfed their cattle and breeding programmes too didn’t take off in the right spirit. All of which has combined together to pull down milk production,” said a senior industry official.

The import option

To prevent shortage, the industry is asking for the canalized import of SMP through government agencies and not under the open general license.

This looks feasible because SMP and butter oil are available in abundance globally at rates cheaper than domestic markets.

As per the last auction rates in the middle of March, SMP is selling globally at around Rs 219 per kg while the same is being quoted at around Rs 300-310 per kg in India. That is a difference of almost 37-41 per cent/

When it comes to butter oil, global prices are around Rs 390 per kg, while the domestic prices are also ruling around the same levels.

India levies 40 per cent duty on SMP imports and a similar duty on butter oil imports. The industry is not asking the government for opening up imports or lower duties.

The drill historically is that domestic agencies like the National Dairy Development Board (NDDB) seek the SMP requirement from each cooperative and then based on requirements float global tenders. Imports are then distributed among all those who need it so that the supply crunch is eased.

“This has been done in the past and could be attempted now as well because it is getting over and if imports are delayed much then they might land up at a time when supplies rise leading to drop in prices hurting the farmers,” Rahul Kumar, managing director of Lactalis India, a milk and dairy products company, told 'Business Standard'.

“For now, there is no shortage, but the situation is getting tight and we might need to import. But, import just to reduce prices will harm consumers and we should take a calibrated and balanced view so that interests of farmers and consumers both are protected,” R S Sodhi, president of Indian Dairy Association (IDA) and former managing director of Amul told 'Business Standard' a few weeks back.