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Milk prices spiral as demand outpaces rising production

This is not because milk production is falling, quite the contrary. Production is rising, but the thirst for milk is rising even faster. Prices of milk and milk products rose 15.3 per cent in 2011/12.

The prices of milk and milk products rose 15.3 per cent in 2011/12 - the biggest contributors to the persistent food inflation. But this is not because milk production is falling, quite the contrary. Production is rising, but the thirst for milk is rising even faster. People are drinking more milk than ever before and, of course, every year there are more people.

"There is a shift taking place in dietary habits," says Amrita Patel, Chairperson of the National Dairy Development Board (NDDB). "People are eating fewer cereals and consuming more milk than before as a result of rising incomes in the rural areas and a growing middle class."

A year ago, the milk cooperative at Kadenahalli village of Kolar district in Karnataka had 1,100 litres of milk delivered to it daily. Now it gets 1,200 litres. The scene is much the same across the country, with production rising to 122 million tonnes in 2010/2011 from 116 million tonnes the year before.

The NDDB estimates that demand will grow to 155 million tonnes by 2016 and 210 million tonnes by 2022.

Women carrying milk to a cooperative dairy in Palanpur, Gujarat
Women carrying milk to a cooperative dairy in Palanpur, Gujarat
To meet this burgeoning demand, milk production will have to grow at 4.2 per cent a year, instead of 3.5 per cent at present. It is the NDDB which, under the Rs 17,300 crore, 15-year National Dairy Plan (NDP), has been entrusted with the task of making this happen.

"This will be a challenge because all these years the growth came on a low base," says Patel. "But it is not unachievable."

She has already kicked off the first phase of the plan, involving an expenditure of Rs 2,242 crore across 14 states which account for 90 per cent of India's milk production. It aims at increasing the productivity of milch animals and helping farmers get greater access to the organised milk processing sector.
 
The cost of failing to meet the ambitious targets will be high: India will have no option but to import which, in turn, experts warn, will further raise milk prices.

To try and check milk prices, exports of milk powder and casein - a protein extract from milk - have already been banned since February last year.

Both private dairy firms and Agriculture Minister Sharad Pawar have protested the ban but the Commerce Ministry has remained unmoved. Pawar, who even wrote to Prime Minister Manmohan Singh in protest, maintains the ban hurts dairy farmers' interests, while private firms have grumbled about the loss of export opportunities.

Even those firms unwilling to openly oppose the ban have pleaded for consistency in export policy.

"Some sense of certainty in the export policy would help us," says Nara Lokesh, Executive Director of the Hyderabad-based private player Heritage Foods. "A road map on the ban would help us calibrate our marketing strategy."

The private dairies are also disappointed to find the NDP has no role for them, despite the private sector being in the vanguard of the surge in milk production.

Private milk companies had a processing capacity of 57.1 million litres against 37.2 million litres by milk cooperatives in March 2010, the latest figures available. Processing capacity is vital, since this is what enables the preservation of milk for long periods, which alone can ensure a steady supply through the year, including the lean months.

"The private sector has performed substantially better than the cooperatives," says R.G. Chandramogan, Chairman and Managing Director of Hatsun Agro, a leading Chennai-based milk producer.

"Yet the government ignores us while making policies."

While acknowledging the private sector's role in increasing milk production, the NDDB points out the NDP uses government funding and thus cannot involve the private sector in any way.

"If animal productivity increases as targeted, it will help private sector too as the farmer will sell his produce to whoever offers him the best price," says Patel.