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Creamed by costs, dairies pin hopes on value addition

Dairy players claimed that around 2009, farmers had started moving from dairy farming on high prices of fodder and other costs

Sohini Das  |  Ahmedabad 

The retail price of milk has risen 60-70 per cent in four to five years, and sources say prices will only go up. Dairies say to offset the increasing cost of production, they will have to move to more value-added, higher-margin products.

“The rise has been sharp. It was on higher payments to farmers to retain them in dairy,” said Kuldeep Saluja, managing director, Delhi-based Sterling Agro Industries.

Dairy players claimed that around 2009, farmers had started moving from dairy farming on high prices of fodder and other costs.

The country’s largest dairy player, Gujarat Cooperative Milk Marketing Federation (GCMMF) is paying an average procurement price of Rs 500 a kg fat. In four years, GCMMF has seen procurement prices going up 68 per cent. Despite that, 50 farms (50 cattle each) had closed in the Kheda district in two years, said an official.

“Of the retail price of liquid milk, 80 per cent goes to farmers,” said Managing Director R S Sodhi.

About 60 per cent of the procurement cost is feed's. Its costs have doubled in five years, an official said.

Milk demand in India is projected to be 200-210 million tonnes by 2021-22. Production was 128 million in 2011-12. Besides, fuel prices have been a concern for dairies. Those add huge transportation costs, said Jayesh Desai, managing director, Sumul Dairy, Surat.

Packaging is five per cent of the total cost. Flexible packaging material's prices have increased from Rs 78-80 per kg to Rs 140.

On raising prices in October, GCMMF had said, "While the food inflation is 18 per cent, Amul milk prices have been increased by only 10 per cent over the last year. Amul is partly passing on its rise to the consumers." Similar is the case with private dairies and the National Dairy Development Board (NDDB).

Devendra Shah, chairman and managing director, Parag Milk Foods, said, “Margins were under pressure. One way to offset it was to move to skimmed milk powder exports and value-added products.”

Demand for value-added products is growing at 20-24 per cent. While margins in milk are four per cent, for curd, those are 15-20 per cent.

The positive part to the milk story is India’s per capita availability of the commodity has touched 290g a day, against world per capita availability of 289. “From 84.4 million tonnes in 2001-02, the production in India reached 127.9 million in 2011-12. This represented a compound annual growth of 4.2 per cent during the period,” said Titiksha Vats, analyst, IMARC Group. Production in India is likely to touch 135 million in 2013-14, the highest in the world.

Rising consumption is driving the dairy sector, and also drawing foreign players into the market. Their entry could open the market for value-added products further.

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First Published: Wed, November 20 2013. 22:33 IST