India File

‘Private dairies have withdrawn from procurement’

Rutam Vora | Updated on July 31, 2018

RS SODHI, Managing Director, GCMMF   -  P V SIVAKUMAR

R S Sodhi, Managing Director of the Gujarat Cooperative Milk Marketing Federation (GCMMF), speaks to BusinessLine on issues relating to milk prices, the rise of private dairies and the role of cooperatives. Excerpts:

What are the causes of the current milk crisis in India?

Over the past few years, private dairy capacities have grown significantly in India. They are mostly in the commodity space (skimmed milk powder or SMP, and butter oil).

Even while overall private sector capacities are nearly equal to that of cooperatives, milk handling varies according to the market situation, as private players procure milk only when prices of their end products, SMP and butter oil, are higher and yield good profit for them. Over the last two years, the private sector has reduced milk handling drastically, because commodity prices have fallen globally, leading to a glut in India. As a result, private dairies have withdrawn from procurement and cut procurement prices. What happened in Maharashtra is a reflection of this.

Why does private sector falter whenever there is more milk?

Private players first look at the margins. Cooperatives, on the other hand, take care of the interest of the farmers, even if they run into losses sometimes. The cooperative model has to provide stable and remunerative prices for milk.

Private dairies, being predominantly in the commodity space, stop activities as supplies rise, and turn to cooperatives to buy milk powder and repackage it under their brand. This is economical for them because, against the production cost of ₹230 a kg, cooperatives still make SMP and sell it at a reduced market price of ₹140 by making a loss of ₹80-90 a kg.

In such a scenario, how is the farmer’s interest protected?

Cooperatives give higher prices, but where cooperatives are not present, private players give less. Ultimately it is the farmer who decides whom to sell milk to. In States other than Gujarat, cooperatives too have to reduce prices, but not as much as private players. At any rate they don’t increase prices, while the farmer’s input costs continue to rise with his finished product price. In some States, subsidy tries to plug the difference to maintain the prices.

In the current arrangement, who decides the prices?

Each district union decides its own price payable to the farmers based on their business viability and balance sheet. It keeps changing month to month. There is no specific model, wherein the government announces a minimum price for milk as seen in the case of Maharashtra.

The farmer may produce the milk, but he is not the price setter. He is a price follower based on market forces. Cooperatives too don’t have a say in price determination. The challenge is that milk prices are not decided based on the input costs. For the past nine years, we have been able to give 9 per cent average increase every year. But this year we are not able to, because we are also incurring losses in SMP.

What differentiates Gujarat’s Amul model from other States?

There isn’t much difference. But in major States like Maharashtra and Uttar Pradesh, cooperative procurement is not happening under a single umbrella. There would be several cooperatives with their own brand and cost structure. Hence, they are unable to create one strong brand like Amul, where 18 district cooperative unions are connected. This is the reason for the rise of private dairies and fall in cooperatives structure. Therefore, private players will be able to get the cheapest milk, making commodity production attractive.

Secondly, Amul’s advantage is that it has other products. Other cooperatives are unable to make profits because of high dependence on commodity prices.

What is required to keep the next generation interested in dairy farming?

The next generation is interested in any business that looks modern, attractive and remunerative. It will go with commercial farming. Jobs in cities are limited. There is a need to generate employment at rural level. But the attraction will be best prices.

Private sector is good if it develops individual clusters where cooperatives are not present and takes care of the farmers, paying them stable and remunerative prices. It will improve the procurement and production of milk in those clusters.

What are the export prospects for Indian dairy products?

Today, we are unable to export to the world’s largest importer of dairy products, China, because of a retaliatory ban imposed by that country against India’s import restrictions on some non-dairy Chinese imports. After the melamine episode in 2008, we and many other countries put a ban on Chinese imports. While many other countries lifted the ban, we kept extending it. China too did the same. But the loser is not China. We have requested the Commerce Ministry to lift the ban. Due to foot and mouth disease (FMD) scare in Indonesia, Malaysia and Mexico, we have set eyes on China. However, over the last two-three years, we were also not serious about exports. India market prices were higher than the world market so we didn’t need to look for exports. Now we have become competitive.

What challenges do you see for Indian dairy sector’s growth?

The first challenge is to keep the next generation interested in dairy farming. India’s population is set to increase to 1.5 billion by 2050 and the per capita milk consumption is estimated to reach 800 gm per day from 360 gm currently. This will require increasing milk production three times to 540 million tonnes from the current 165 million tonnes. Also, we need to improve productivity per animal from the current 3-3.5 litres per cattle per day. This will require better breeding and feeding practices. And more importantly, protect the Indian market from the dumping of dairy products from other countries.

Published on July 30, 2018

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