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Drought dries up milk procurement in key States -Rutam Vora & Vishwanath Kulkarni
-The Hindu Business Line

Accumulated stocks of skimmed milk powder insulate consumers from price hike

Ahmedabad/ Bengaluru: The drought and heat wave across many States has impacted milk production, thereby affecting procurement by dairy co-operatives and private players.

In the key milk-producing States of Maharashtra, Gujarat, Uttar Pradesh and Rajasthan, the procurement of liquid milk has dropped 20-50 per cent, which is more than the usual seasonal decline witnessed during summer.

Experts blamed it on drought and the scarcity of fodder and water.

However, in Karnataka, which witnessed sporadic pre-monsoon showers in recent weeks, the trend in milk procurement has reversed, and has begun to pick up.

The impact of the decline in procurement has not hit the consumers both in terms of supplies and prices, thanks to the abundant supplies of skimmed milk powder (SMP), estimated at around 1.5 lakh tonnes at the beginning of the year.

Dairy players, while increasing the procurement prices to farmers, are relying heavily on SMP to maintain their liquid milk supplies.

Prices may rise

The Gujarat Cooperative Milk Marketing Federation (GCMMF), India’s largest milk co-operative, which sells products under the Amul brand, has already raised concerns about a drop in milk procurement, which could possibly prompt it to increase prices for consumers in the near future.

GCMMF’s estimated average milk procurement stands at about 180 lakh litres per day (LLPD), down by 35 LLPD, or 16 per cent, from the peak procurement of 215 LLPD in early January.

GCMMF Managing Director Rs. Sodhi had earlier confirmed the decline in milk procurement since January.

“Input costs for farmers have gone up. We expect milk and milk products prices to go up in the next two months,” Sodhi had said in April. Milk procurement usually falls during summer, but a drought situation in a large geographical area over the milk-producing region seems to have intensified the fall.

In Maharashtra, where the drought has been had among the worst effect, the situation is particularly bad.

Milk procurement fell in April to 116 LLPD, down 30 per cent from 165 LLPD in January. Normally, milk production during summer declines by 7-10 per cent as milch animals eat less due to the heat. But this time, the drop is more striking.

Procurement price hiked

According to a senior official at Mahanand Dairy in Mumbai, procurement has dropped sharply in April and May.

To keep the milk business remunerative for farmers, the procurement price was revised upwards earlier this year owing to the drought situation.

The price increase is in the range of Rs. 1-2 per litre, depending on the quality of the milk.

“The Cooperatives Federation and the local administration are ensuring fodder availability to avoid animal deaths. This is providing alternative income for people in distress. Even in the drought situation, milk procurement at our Mahanand dairy has remained stable at 4 LLPD,” said SD Wagh, Marketing Manager at Maharashtra Rajya Sahakari Dudh Mahasangh Maryadit, also known as Mahanand Dairy, an apex federation of district or taluka milk unions in Maharashtra.

Of the total average milk procurement of 116 LLPD in Maharashtra, about 70 per cent comes from private dairies, about 30 per cent from cooperative dairies, while a marginal 0.5 per cent comes from the public sector.

“Private dairies from Maharashtra sell about 18-20 LLPD in the open market in Telangana and Andhra Pradesh,” added Wagh.

The demand for SMP by dairies has pushed up prices of the powder in recent months.

“SMP prices, which hovered at Rs. 145-185 a kg during winter, are now about Rs. 220-225. We expect the accumulated SMP stocks in the country to be depleted by July,” said Rs. Khanna, Chairman, Kwality Ltd, a dairy firm in Delhi.

Price pass-through pressures

Delhi-based Kwality, which procures milk from Rajasthan, Haryana and Uttar Pradesh, has seen its procurement decline by 20 per cent and expects it to go down further by another 10 per cent next month when the mercury soars in the region.

Consumers have thus far been spared the impact in prices, though there has been an increase in prices for farmers, Khanna said.

The price per kg of fat for farmers has gone up to Rs. 600 from Rs. 540.

“Our procurement price for farmers has gone up around 12 per cent this summer,” said Sandeep Agarwal, Director, SMC Foods.

India’s milk production rose to 146 million tonnes in 2014-15 and the per capita availability stood at 322 grams per day.

“Our daily procurement – which touched a low of 59 LLPD during the peak summer – has now recovered with the onset of cool weather and the calving season. We are now procuring about 61.72 LLPD and expect it to go up further in the coming months,” said P Nagaraju, Chairman of the Karnataka Milk Federation (KMF), the second-largest milk co-operative in the country.

During the peak production season last year, KMF’s procurement had touched a high of 73 LLPD.