The squeeze is on the consumer regardless of what dairies pay farmers

The consumer, it seems, is destined to be milked dry when it comes to milk.

Two years ago, full-cream milk with 6 per cent fat content retailed at ₹37 a litre in Delhi. Today, it sells at ₹46.

If you ask dairies for a reason, their stock reply is: farmers need to be compensated for higher fodder and labour costs, and so do us for having to pay more for transport, power, plastic film, etc.

They may have a point. Dairies in the North are currently paying ₹37-38 a litre for milk delivered at their dock. Add to this ₹1 each towards processing (pasteurisation, electricity, labour and overheads) and packing, and ₹2.50 on local transport and distributor/retailer commission, the total cost comes to roughly ₹42 a litre. This, on a sale price of ₹46, leaves a margin of ₹4 on every litre — more than decent for a fast-moving product. Reasonable, one might also say.

Reasonable?

You would think differently though, if you considered the situation this time last year. Dairies were then paying ₹25-26/litre for milk at their doorstep — below even the ₹31-32 levels of January-February 2012. But the price crash for milk producers did not benefit consumers. They paid ₹39/litre in January-February 2013. At that price and after deducting all costs, the margins for dairies would have been ₹8-9/litre. Those selling 10 lakh litres per day (LLPD) — the biggest one in the national capital region does 30 LLPD — would have raked in ₹80-90 lakh daily or ₹300 crore for the whole year.

The consumer did not gain a paisa from last year’s surplus milk production, which saw dairies slash procurement prices and cooperatives saddled with excess powder/butter fat stocks. Some States such as Karnataka even started supplying milk free to children in government schools. But those stocks — about 1.2 lakh tonnes of powder alone — have since disappeared. Low realisations prompted many producers to send their animals to the slaughter house rather than feeding and milking them.

The producers are now getting their revenge, with dairies chasing milk and bidding up prices. What about consumers? Well, they did not pay less for milk in 2013 when producers lost and dairies reaped a windfall.

They continue to lose in 2014, even as dairies coolly pass on their costs in the name of the farmer.

(This article was published on February 10, 2014)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.