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Resource centre on India's rural distress
 
 

Not all milk and honey -Ashok Gulati & Ritika Juneja

-The Indian Express

Only 21 per cent of India’s milk production gets processed through the organised sector and the rest passes through unorganised small players. And that’s where the crisis is most intense.

Farmers, who had high expectations from the Narendra Modi government, are a disillusioned lot today. Market prices of several crops have remained well below their minimum support prices (MSPs). Moreover, milk prices have fallen by 20 per cent to 30 per cent (by Rs 5 to10 per litre for cow milk) in several milk-surplus states in western and northern India, including Maharashtra, Gujarat, Rajasthan Punjab, Haryana and UP. No wonder, farmers were seen spilling milk on roads or distributing free milk to the poor during their 10-day agitation.

This reminds us of the history of Kheda district in Gujarat, which was struck by a milk crisis in 1946. Sardar Vallabhbhai Patel stepped in to solve the problem of low milk prices. He gave India its first and largest milk cooperative (AMUL), and in the process, emerged as a leader of farmers. A similar situation confronts Prime Minister Narendra Modi today. If he can find a solution to the falling milk prices, he will emerge as an undisputed leader of farmers. India is the largest producer of milk (165.4 MMT in 2016-17); the value of milk is more than that of rice and wheat combined. So, it is India’s biggest agri-produce. It is a source of income to small and landless agri-households — 70 per cent of those earning their livelihood from milk are women.

But before we get to the plausible solutions to the problem of falling milk prices in India, let us try to understand what led to this situation. First, the increase in milk production since 2014-2015 has been unprecedented (6.3 per cent per annum between fiscal year FY 2015 and FY 2017; FY 2018 figures are not yet finalised), compared to about 4.2 per cent in the three years preceding that (see graph-1). Moreover, the milk output, instead of falling during the lean (summer) season, registered high growth in 2017-18 vis-à-vis 2016-17. Doubts that some experts raise about the authenticity of milk production data, the fact that the prices are falling indicates that supplies exceed demand. Second, in such a situation of glut, India should have been exporting large quantities of skimmed milk powder (SMP). Unfortunately, the global SMP prices have tumbled $4,744/tonne in 2013-14 to $1,925/tonne in 2017-18, making SMP exports unviable. India’s SMP exports plummeted from an all-time high of 124 thousand tonnes in 2013-14 to just 11.3 thousand tonnes in 2017-18 (see graph-2). Not finding a good export outlet has accentuated the milk price crisis in the country.

Third, market information today suggests that some large cooperatives (like AMUL) or even some large organised private players with a lot of value-added milk products — and with contracts with farmers — have been able to hold the price line for farmers. But innumerable small players dabbling in liquid milk and/or SMP have led to a substantial reduction in procurement prices. Remember, only 21 per cent of India’s milk production gets processed through the organised sector and the rest passes through unorganised small players. And that’s where the crisis is most intense.

What can PM Modi do to tide over the milk price problem for millions of small farmers? Here are a few suggestions. One, create a buffer stock of two lakh tonnes of SMP through NDDB. This would imply withdrawing two million tonnes of liquid milk from the market, improving the market sentiment and upping the price line. At the current market price of about Rs 150/kg, it will cost about Rs 3,000 crore, much less than the package that was recently offered to the sugar industry.

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