After onion, milk price hike is new headache for government

December 15, 2019
Harish Damodaran | IE 
 

NEW DELHI — After onion, it’s milk that seems to be pinching the pockets of consumers. On Saturday, the Gujarat Cooperative Milk Marketing Federation (GCMMF), better known as Amul, and the National Dairy Development Board-owned Mother Dairy hiked the maximum retail prices (MRP) of their various pouch milk variants by Rs 2 per litre.


This marked the second such rate revision undertaken by the two dairy majors in the current year.

However, it can be seen that the milk MRP increase during the NDA government’s tenure, since its first tenure started on May 26, 2014, has been quite insignificant. The overall rise in the last more than five-and-a-half years works out to just Rs 8 per litre, with half of it coming within the past seven months.

 

EXPLAINEDSignals food inflation
As India’s largest “crop” by value bought and consumed daily, milk is more representative of the return of food inflation. Unlike onion, the prices of which can be expected to fall after March, the milk supply situation may take longer to ease.

 

Contrast this to the period since 2010 before this government assumed office, which saw the MRP of full-cream milk in the Delhi-NCR market going up by Rs 18 per litre, while amounting to Rs 14 for toned milk.

The price trend also mirrors consumer food inflation, which averaged below 3.3 per cent year-on-year during the NDA government’s first term from June 2014 to May 2019, as against 11 per cent-plus between 2009-10 and 2013-14 under the Congress-led UPA.

While consumers have had a relatively good deal during this regime, the same cannot be said about farmers, though.

The average procurement price paid to milk producers by GCMMF unions, for instance, rose from Rs 298 per kg of fat in 2008-09 to Rs 535 in 2013-14. That, for full-cream milk containing 6 per cent fat and 9 per cent solids-not-fat, translates into an increase from Rs 18.42 to Rs 33.06 per litre or 79.5 per cent. But since 2013-14, the average producer price has gone up by only Rs 155 to Rs 690 per kg fat or Rs 42.64 per litre in 2018-19. That is less than 29 per cent over five years.

This relatively bad deal for producers is what’s witnessing some correction now.

Consumer food inflation in November touched 10.01 per cent, the first time it has crossed single digits since December 2013. This is being reflected in milk as well, with both cooperative and private dairies reporting 4-5 per cent lower procurement so far this fiscal compared to in 2018-19.

GCMMF unions alone — perhaps, for the first time — have recorded a 5-6 per cent drop in milk collection, despite paying Rs 100-110 more per kg fat to their 30 lakh-odd producers. Meanwhile, skimmed milk powder prices have roughly doubled to Rs 300 per kg levels in the last one year.

The reasons for the tightness in supply may be partly weather-related and partly structural. The “flush” season for milk — when production by animals goes up due to better fodder and water availability, besides lower temperatures and humidity — is normally from October till March. This time, the flush has been delayed because of excess rains from September through November.

“It’s been raining intermittently, so much so that even the open fields where animals graze are waterlogged. The fodder isn’t coming up, as the water has to go down first for that. Now that the winter has set in and the rains have also subsided, the flush should take off. The demand situation, too, is likely to ease with the end of the marriage season,” says the chairman of a leading south-based private sector dairy company.

As far as structural reasons go, R S Sodhi, managing director of GCMMF, feels that the extended three years or so period of low prices have resulted in farmers reducing herd sizes and also under-investing in animal nutrition and health. On top of it, the cost of maize, cottonseed oil cake, de-oiled rice bran and other feed ingredients has also increased. “The recent price revisions should hopefully encourage farmers to buy more animals and feed them better,” he says.

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