Domestic dairy majors foresee a strong rebound in milk procurement in the coming fiscal, following a “dry” 2010-11 that has seen prices surge both at the producer and consumer end.

“Our unions will record a minimum 10 per cent procurement growth in 2011-12,” says Mr R.S. Sodhi, Managing Director, Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF). Dairies affiliated to the country's largest milk handler – owner of the “Amul” brand – have procured an average 93.50 lakh litres per day (LLPD) this fiscal, an increase of hardly 3 per cent over 2009-10.

“Next year, we will easily cross 100 LLPD,” claims Mr Sodhi. His optimism is grounded in two factors. The first is, of course, prices. GCMMF's member unions have paid farmers an average Rs 400 for every kg of milk fat during 2010-11. Adding a likely bonus of Rs 20 after finalisation of accounts, producers will eventually get Rs 420 a kg against Rs 337 in the preceding fiscal.

A Rs 420 rate for buffalo milk, containing 7 per cent fat and 9 per cent solids-not-fat (SNF), translates into a price of Rs 29.40 a kg or Rs 30.28 a litre (one litre=1.03 kg). For full-cream “Amul Gold” milk with 6 per cent fat and 9 per cent SNF – retailing now at Rs 34 a litre in Mumbai and Delhi – the corresponding producer's price comes to Rs 27.95.

Remunerative prices

“The current rates are quite remunerative for producers, made even better by a good monsoon that has improved overall fodder availability and reined in cattle-feed prices. The impact of these will be seen in milk collection during the coming months,” notes Mr Sodhi.

Linked to this is a second factor: Stabilisation of the reproductive-cum-lactation cycle of animals from the drought-induced disruptions of 2009-10. Dairies, interestingly, procure more during drought years, as farmers step up milk sales to make up for lost income from their main crop.

The drought's real effect is felt only in the subsequent year, when fodder deprivation leads to delayed calving of pregnant animals (which were accorded low feeding priority relative to the ones already in-milk or about to lactate). This was, indeed, the case in 2002-02, a drought year that registered a spike in GCMMF's procurement – which was followed by a decline in 2003-04.

Rebound effect

Mr Sodhi did not rule out a repeat of the same phenomenon this time. While procurement rose sharply in 2009-10, it has been flat in 2010-11, which might, however, be the precursor to a jump in the coming fiscal. The process will be further aided by the substantial producer price correction in the last 2-3 years (see Table).

Mr Sodhi's views were echoed by Mr R.G. Chandramogan of Hatsun Agro Product Ltd. “Our average milk procurement this fiscal, at 15 LLPD, is more or less what we managed in 2009-10. But for 2011-12, I expect a 20 per cent increase to 18 LLPD, with peak collection topping 20 LLPD,” the Chairman of India's largest private dairy company told Business Line .

That should offer some comfort to retail as well industrial consumers of milk. During April-February, the average wholesale price index for milk rose 21.6 per cent over the corresponding 11 months' level of 2009-10, which was, in turn, 18.19 per cent higher than that for April-February 2008-09.

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