White Revolution has a long way to go

Last Updated: Sat, Jun 02, 2012 18:41 hrs

India’s famed ‘milk revolution’ has made it the world’s single-largest producer — a sixth of global output comes from this country. It has been a steady rise; this past decade, for instance, has seen a yearly rise of almost four per cent in output, the total figure last year being about 120 million tonnes.

Juxtapose this with the fact that milk prices for the consumer have doubled between 2002 and now. In the past three years, they have risen by close to 30 per cent. Also, as multitudes of consumers in this capital city would vouch, milk is often simply unavailable with most retailers, including the giant Mother Dairy chain, by evening.

This city, again, was witness some days earlier to angry milkmen from different parts pouring tonnes of the precious liquid on the streets, to make a point about how uneconomic their livelihood had become.

Just what is going on? How is the producer of a sixth of the planet’s milk beset with restive consumers complaining about repeated price rises, plus unavailability, while dairy farmers and milk traders grouse about their pathetic returns?

Demand, supply
This year’s Economic Survey pointed to one big reason, the continuous rise in demand. Milk production itself, it noted, had grown twice as fast this past decade than general agriculture and also world output. “Also, thanks to the ‘white’ revolution, the sector is relatively better organised, a success story worldwide, by helping smallholders into cooperatives and arranging an efficient collection, storage and distribution system.”

But demand has kept pace, it noted, proportionate with urbanisation. “Monthly per capita liquid milk consumption in urban areas (from National Sample Survey data) is far higher (5.4 litres) than in rural (4 litres); milk products (powder, solids, paneer, cheese, others) consumption is overwhelmingly urban and fastest growing (over 12 per cent per annum), a pattern seen worldwide...”

Sector experts also contest the urbanite’s belief on regular, sharp and unreasonable rises in retail prices. “Every agricultural produce has seen sharp increases in recent years. But the frequency of price hike is much lower in milk. Let us not just see last year. It was an exception,” said R S Sodhi, managing director, Gujarat Cooperative Milk Marketing Federation, which sells milk and milk products under the famed Amul brand.

Sodhi adds that milk productivity continues to be low. “We have been giving good prices to farmers to encourage them in augmenting production. But more steps must be taken under the National Dairy Plan. We do not have any agency to stock buffer milk in powder form in surplus seasons for use in years of shortage. This is a surplus year. If we had any agency like FCI (Food Corporation of India), surplus could be stocked,” he said.

Last year’s Economic Survey estimated domestic demand for milk was growing at around six million tonnes yearly, while incremental yearly production in the past 10 years was around 3.5 mt. Estimates differ on the actual figures, since so much of the sector is not organised; dairy co-operatives, for instance, collected less than 10 mt last year of the 121 mt total output. Yet, none disagree on this trend of demand racing ahead of output rise. Technopak, for instance, says milk supply growth is six per cent yearly against demand growth of eight per cent.

This is to be expected. With growing affluence anywhere, there’s a noticeable change in food habits from cereals to more protein-rich diets — eggs, fish, meat and milk and dairy products. The Planning Commission says India’s annual milk requirement in 2021-22 should be around 180 mt. “To meet this domestic demand, production has to rise by a bare minimum of 5.5 per cent in the next 10 years, or else India would need to import huge quantities of milk from the international markets,” said the Survey.

Costs, structures
But, how? “The biggest problem in milk today is the sudden and unnatural rise in feed cost (maize and soymeal) in the last few years. The high cost has not only translated into less margin for growers, but has also put them under pressure to sell at a higher price,” says agricultural economist and Planning Commission member Abhijit Sen. He says animal feed is becoming extremely costly, leaving no option for growers but to raise the price of end-products like milk.

“Our trade policy on animal feed is to be blamed to this mess. We have no control on the export of maize and soymeal, which pushes up domestic prices,” Sen said. He said the skewed Minimum Support Price policy of the government is also to partly blame for sudden rises in milk prices. “If you raise the MSP of all other competing crops, milkmen expect the same for their produce as well because their cost of production is also rising,” he notes.

However, like Amul’s Sodhi, he says last year’s surge was exceptional and an after-effect of the severe 2009 drought. “It was one of the worst droughts in 30 years, whose effect on animals continued in 2010 and 2011. Also, the sharp rise in rural incomes because of programmes like MNREGS (the rural job guarantee scheme) is also coming down to realistic levels. Hence, I don’t foresee a sharp spike in milk prices in the immediate future,” Sen added.

Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices, said milk demand growth was almost four to five times higher than that for cereals. “When income rises, demand for milk and milk products increases fast. Also, fodder cost is growing at an astronomical speed because of an almost 40 per cent shortage in production,” he said.

Gulati suggests the dairy sector needs to come out of small, fragmented activity to a highly organised one. “Dairy as a household activity won’t be enough to sustain Indian demand. We need to lift the size of dairies from the current 1-2 animals (each) to at least 20 animals. This, when supplemented with modern technologies, could provide the answer to India’s problems in the milk sector,” he said.

Way forward
One good thing for producers, and thus for distribution, is the entry of private players as a competitor for the produce. Recent entrants to the milk retailing business include Reliance Dairy, Kwality Dairy, Paras, Gopaljee and so on. “Liquid milk as a category is still underdeveloped in India. It is good that more players, especially from the private sector are entering this area,” said Sodhi. There are others like Sterling Agro and SMC Foods that have solely focused on milk-based products such as skimmed powder, etc.

Again, a new segment in trading is opening where companies procure milk and supply to the dairy industry for further processing. Hariyali Bazaar, the rural retail arm of DCM Shriram Consolidated, began this a couple of years before. Hariyali is procuring up to 23,000 litres of milk daily from Uttar Pradesh and Rajasthan daily, supplying to milk powder makers.

As a result of the entry of organised companies, both from the cooperative sector and the private sector, farmers benefit. They get paid in cash thrice every month in most places for the milk sold to these companies. Farmers get a price on the basis of the fat content in both cow and buffalo milk.

Sodhi said most milk companies charge Rs 6-7 per litre as the value addition from end-consumers. “This money is required to cover various heads like procurement, transportation from farmers to the processing unit and from unit to dealers/retailers, processing cost, margins for dealers/retailers, marketing expenditure, etc,” he explained.

At village Barauli Gujar near Agra, there are three entities —Mother Dairy, Sterling Agro and Paras Dairy — competing for the milk. Milkmen used to get as little as Rs 15 per litre before these organised players entered the region. “We get as much Rs 25 to Rs 32 per litre for the milk, depending on its fat content. However, with the recent cost push on cattle feed, we need higher prices,” said Raghuvir Singh Tomar, a progressive farmer having 60 cows and buffaloes. The cattle, he explains, give milk for not more than seven to eight months during the year, but costs remain stable through the year.

The National Dairy Development Board hopes to address some of these issues in its Rs 17,000-crore, 15-year, National Dairy Plan. The aim is to double milk production over the next 15 years and the first phase, of six years, got going last month. About Rs 2,200 crore has been allocated for projects to enhance artificial insemination, fodder development, and village-level education and procurement.

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