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Dairy farmers in dire straits

Fall in realisation forces them to abstain from fresh investments

Dilip Kumar Jha  |  Mumbai 

Milk farmers in dire strait

India’s milk farmers are hit by a sharp decline in realisation from dairy farms in the past year. So, farmers are abstaining from fresh investment which could affect milk availability in the peak demand season beginning March.

Farmers’ average realisation from milk supply has fallen by Rs 3-4 a litre across the country at a time when animal feed prices have risen due to lower kharif foodgrains output. Dairy farms that had paid Rs 25-26 a litre for milk procurement last year, are now paying Rs 22 a litre now. In some areas of Gujarat, Karnataka, Rajasthan and Bihar, dairy farmers have been paying lower than Rs 20 a litre to farmers. Milk being a highly perishable commodity, farmers have little choice but to offload their inventory to the nearby dairy farms. Unfortunately, farmers have been losing heavily over the past year. Dairies in Tamil Nadu has declared two days a week as holidays. They don't procure milk on two days.

The issue assumes significance as farmers invested heavily in purchasing cows amid expectations of better realisation. Trade sources believe a number of them borrowed money from lenders to which they are paying interest. Because of a sharp fall in milk prices, dairy producers are fetching huge margins as the same has not been passed on either to daily milk consumers or processed food (cheese, curd, butter milk, etc) buyers. However, falling milk prices have created pressure on organised dairy producers to cut prices, which they are likely to do in January. So far, they have refrained from passing on the benefits of lower procurement cost to consumers.

“Dairy products’ prices have declined by 50 per cent in the past one year. In areas where farmers are supplying milk to dairy producers especially for products (skimmed milk powder or SMP), producers have been realising at least 30-40 per cent lower this year. Because of oversupply, dairy companies have not raised milk prices in the past one year despite a 20-30 per cent increase in animal feed prices. While co-operative dairies have not cut prices, their margins have come under tremendous pressure,” said R S Sodhi, chairman, Gujarat Dairy Development Corporation, the producer of India’s largest dairy brand — Amul.

Dairy farmers in dire straits
India’s total milk production is estimated at 140 million tonnes in 2014-15, a rise of three million tonnes from the last year. But, over the past six years, milk production has increased by six million tonnes a year thanks to enhanced focus on new animal breeding and fresh investment by farmers.

Of the total milk production in India, organised sector contributes 20 per cent. According to an estimate, only five per cent of the overall milk production in India goes to dairies in commodity business, largely SMP.

“This small segment of the dairy industry plays a spoilsport, which has pushed the entire industry into doldrums. SMP price rose abnormally high last year on sudden spurt in demand which is softening now,” said Shirish Upadhyay, senior vice-president (strategic planning), Parag Milk Foods Ltd.

In fact, prices of SMP have declined by half to Rs 140 a kg now from Rs 280-290 a kg a year ago. There is no taker even at the current price of Rs 140 a kg due to global oversupply. Similarly, white butter is currently sold at Rs 220-230 a kg against Rs 275-280 a kg about a year ago.

“Lots of players have entered the SMP production business in the past year despite a fall in prices, resulting in a supply glut. But, SMP prices have started improving steadily. It will take at least six months to have its implication on India,” said Vivek Nirmal, managing director, Prabhat Dairy.

Meanwhile, the Maharashtra government has started procurement of milk from farmers at Rs 20 a litre. Over the past few months, it has procured milk at an average rate of 500,000 litres a month.

The state government has, thus, produced around 5,000 tonnes of SMP, which is set to be auctioned shortly.

“The government (of Maharashtra) has approved auction of 2,400 tonnes of SMP in the first phase to which tender would be opened soon. In the second phase, we would auction the remaining 2,600 tonnes of SMP,” said A R Jadhav, deputy commissioner, Maharashtra Dairy Development Commission.

In Maharashtra, the private sector and co-operatives contribute 65 per cent and 34 per cent of the entire dairy products, respectively, while the government shares the remaining one per cent.

“Milk farmers have cut expenses on nutritious feeds for livestock due to lower realisations from milk. If the situation continuos, even livestock prices would start falling, said an animal feed stock producer.

First Published: Tue, November 24 2015. 22:32 IST