Falling milk procurement prices put dairy farmers in a churn

Falling milk procurement prices combined with rising fodder costs have left dairy farmers in dire straits. Large branded milk labels, however, have seen their margins widen as they have refrained from reducing retail prices of milk and value-added products.

Milk procurement prices in Maharashtra have fallen to ₹18-19 a litre from ₹24-25 in the last few months as processors have cut down on procurement to reduce the high inventory of milk powder.

Higher inventory Milk being a highly perishable commodity, farmers are forced to offload their produce to nearby dairy farms and have little bargaining power.

Dry milk powder inventory has gone up to 1-1.50 lakh tonnes from the usual level of 78,000 tonnes due to weak demand in export markets.

The inventory level of dry milk powder has remained firm despite prices of skimmed milk powder in the domestic markets falling 32 per cent to ₹140-150 a kg. Shiva Mudgil, Senior Dairy Analyst (Food and Agribusiness Research), Rabobank, said milk exports have come to a standstill due to the sharp fall in international prices and processors find it more remunerative to sell in the domestic market.

“Milk procurement prices in the international market have fallen to $1,700 a tonne from $4,000 in the last 18 months due to lower demand in China and New Zealand,” he said.

While large milk processors have either reduced prices or are offering discounts on value-added products such as cheese, curd and butter milk, they have refrained from cutting down on packed milk prices.

RS Sodhi, Chairman, Gujarat Dairy Development Corporation, said “the possibility for us to reduce retail prices is limited as we pay a higher price to farmers in Gujarat compared to private sector players in other States”.

Farmers in Gujarat get ₹28-31 a litre for cow milk and ₹38-41 for buffalo milk while in Maharashtra farmers are paid ₹18-20 a litre for cow milk and ₹30-36 for buffalo milk, he said.

The possibility of retail milk prices coming down is limited unless fodder prices fall substantially thus reducing the overall cost for farmers, Sodhi added.

Feed prices Adding to dairy farmers’ woes, animal feed prices have gone up by 20-30 per cent over the last year due to bad crop seasons in the last two years.

On the back of weak monsoon rains in consequent years, the Centre has been encouraging farmers to diversify into allied activities to ensure a steady non-farm income.

In fact, few State governments have pushed farmers to focus on animal husbandry for a steady income from selling milk and milk products, as well as meat, fish and eggs.