Context:
- Within the last year, the Gujarat Cooperative Milk Marketing Federation has raised the maximum retail price (MRP) of its Amul brand full-cream milk (containing 6% fat and 9% SNF or solids-not-fat) in Delhi from Rs 58 to Rs 64 per litre.
- The National Dairy Development Board (NDDB)-owned Mother Dairy went further — from Rs 57 to Rs 66 per litre — between March 5 and December 27, 2022.
Reasons for the price rise:
- Crash in prices following the Covid-induced lockdowns as a result of demand destruction led dairies to slash procurement prices of milk and its products. Farmers responded by:
- Shrinking (or at least not expanding) the size of their herds, as milk prices would not cover the cost of feeding and maintaining the animals
- Underfeeding the calves and the pregnant/ dry cattle who did not give milk. The calves that were underfed during the lockdown are today’s cows. Most of them, even if they have survived, are poor milkers. This is evidenced by dairies across India reporting lower milk procurement
- Supply side issues – Increase in cost of animal feed:
- The cattle feeding cost alone has increased by around 20% compared to last year, on the back of more expensive ingredients such as cotton-seed, rapeseed and groundnut extractions, soybean meal, maize, de-oiled rice bran and molasses.
- Availability of straw (particularly wheat, due to a poor 2021-22 crop) and fodder (because of near-incessant rains, especially in the South, from October-December 2021 through 2022, which did not allow the grass to fully come out) has also been an issue.
- Zoonotic Diseases: Some major milk-producing states have seen a rise in cases of disease among cattle. Lumpy Skin Disease, which leads to fall in milk output, has been reported in Gujarat, Punjab and Haryana.
- There has also been a rise in transport, logistics, manpower, and energy costs.
- Demand side issues – the lifting of lockdown restrictions and revival of economic activity from late-2021 coincided precisely with the building up of supply pressures.
- This was exacerbated by India exporting more than 46,000 tonnes of milk fat between April 2021-November 2022, against a mere 15,600 tonnes in 2020-21.
- Higher exports of butter, ghee, and anhydrous milk fat, enabled by soaring international prices, have added to the domestic shortage.
Way Forward:
- Allow duty-free imports of butter oil and SMP. Butter fat imports currently attract 40% duty. For SMP imports, it is 15% up to 10,000 tonnes per year and 60% for quantities more than that.
- The government can permit NDDB to import fat and SMP at zero duty for building up a buffer stock necessary for the summer, when milk supplies will dry up in the normal course.
