The next inflation: When drought strikes – with a lag

Milk prices rising during peak production season should be a worry for the government

Written by Harish Damodaran | New Delhi | Updated: January 5, 2017 1:23 am
Maharashtra’s dairies, milk, milk prices, maharashtra milk prices, government of india, demonetisation, demonetisation effects, milk trading, cattle trading, cattle trading demonetisation, notebandim cow vigilanting, gau rakshaks, cow milk, buffallow milk, milk production, milk supply chain, inflation, narendra modi, Pm modi demonetisation, agriculture, farmers trading, farmers demonetisation, farmers cash crunch, india news, indian express news Farmers pouring milk at a cooperative society collection centre in Banaskantha, Gujarat. (Source: Express photo by Bhupendra Rana)

In the last six months, Maharashtra’s dairies have seen their procurement prices for cow milk with 3.5 per cent fat and 8.5 per cent SNF (solids-not-fat) content rise from Rs 16-17 to Rs 23-24 a litre. This, even as skimmed milk powder (SMP) rates have climbed from Rs 130-140 to Rs 210-220 per kg.

It has been no different with buffalo milk containing 6.5 per cent fat and 9 per cent SNF, for which dairies in the North are paying farmers Rs 37-38 per litre, as against Rs 31-32 at this time last year. Even sharper has been the increase in fat prices: A 15-kg tin of ghee, selling at under Rs 4,600 a year ago, is now trading at Rs 6,000-plus; white butter prices have similarly soared from Rs 250 to almost Rs 350 a kg.

The above numbers, at first glance, may seem surprising. Shouldn’t prices have actually fallen, given decent monsoon rains after back-to-back drought years? Also, why are prices firming up now, when animals are expected to produce more milk in the natural course with the onset of the ‘flush’ season from winter through the spring?

There could be two reasons why milk prices are rising, even in an overall good agricultural year. The first has to do with the nature of the milk production cycle itself. In bad rainfall years, farmers rely more on milk sales to make up for lost income from their main crop. So, rather than plant cotton or groundnut, they might opt for short-duration fodder crops and invest all their resources into dairying. In the event, more milk may flow from the udders of their buffaloes and cows.

The flip side to this, however, is that farmers even in normal times accord priority in feeding to their animals already in milk. During droughts, they would tend to do this all the more. Since pregnant animals and calves are the ones that are deprived maximum of fodder, their reproduction-cum-lactation cycle suffers disruption. The impact on milk output, though, is felt not immediately, but in the succeeding year.

It could well be the case, then, that 2016-17 is when the effects of not one, but two years of drought, are manifesting themselves. That production has taken a hit is also borne out by milk procurement volumes of dairies. These, according to industry sources, are currently down over last year by around 40 per cent in Maharashtra and 15 per cent in the North, while being flat-to-negative in Gujarat and much of the South.

The second cause for higher prices now may, ironically, be the result of low producer realisations all through 2015 and well into mid-2016. Not even a year ago, The Indian Express had reported about Maharashtra’s dairy farmers experiencing a double whammy from both drought and crashing milk prices. (READ | Maharashtra’s law to ‘preserve’ cattle is achieving just the opposite)

The combination of the two is likely to have led to farmers underfeeding their animals or even reducing herd sizes, whose results are probably being seen only now. Whether gau-rakshak vigilantism and demonetisation may have made matters worse is, of course, a matter of debate.

Either way, the present domestic milk supply situation isn’t the most comfortable, even as SMP stocks with diaries are apparently down to just a third of the estimated 1.5 lakh tonne levels at this time last year. With the supply-demand gap slated to widen once the ‘lean’ summer production season sets in, there will be pressure on the government to open up SMP and butter oil imports. And it isn’t going to be an easy decision, especially with Assembly elections in Gujarat towards the close of this year.

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