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In July 2008, the then BS Yeddyurappa-headed BJP government in Karnataka announced a Rs 2-per-litre subsidy for farmers supplying milk to cooperative dairy unions in the state. In May 2013, the newly elected Congress government of Siddaramaiah doubled the “incentive” to Rs 4, which was further raised to Rs 5 per litre in November 2016.
The result: Average procurement by unions affiliated to the Karnataka Cooperative Milk Producers’ Federation Ltd (KMF) rose from 32.47 lakh kg per day (LKPD) in 2008-09 to 49.07 LKPD in 2012-13, while the BJP was in power. Under the present Congress regime, milk procurement reached 65.51 LKPD by 2016-17, more than double the average of 2008-09!
The above surge in procurement, on the back of a Rs 5/litre subsidy, has definitely helped the 24 lakh-odd farmers pouring milk to Karnataka’s dairy cooperatives. But it has also today become a major source of grievance for the dairy industry in neighbouring Maharashtra.
The reason: While the KMF unions’ average procurement has risen from 31.6 lakh litres per day (LLPD; one litre of milk weighs about 1.028 kg) to 63.7 LLPD between 2008-09 and 2016-17, there has been no commensurate increase in sales.
Pouch milk sales under the KMF’s Nandini brand has gone up only from 22.67 LLPD to 34.01 LLPD during this period. Even after adding 4.20 LLPD of premium UHT (ultra-heat treated) long-life milk and 4.15 LLPD curd, it leaves a procurement surplus of over 21 LLPD – which Maharashtra’s dairies claim is being “dumped” into Karnataka’s neighbouring states.
In Maharashtra, organised dairies procure on an average 120 LLPD of milk, of which roughly 40 per cent (48 LLPD) is by cooperatives and the balance 60 per cent (72 LLPD) by the private sector. Around 80 per cent of the volumes handled by the cooperatives gets sold as liquid milk and the rest converted into skim milk powder (SMP), butter, ghee and other commodities. For private dairies, it’s the other way round: 80 per cent commodities and 20 per cent pouch milk.
“Out of our 120 LLPD procurement, more than 65 LLPD is used to make commodities whose prices (unlike for liquid milk sold in pouches) are volatile and market-driven. The 20-21 LLPD of surplus milk from Karnataka adds to the volatility, because much of it is converted into SMP and fat. And since their raw material is itself highly subsidised, it depresses the prices here,” said the managing director of a leading Ahmednagar-based private dairy company.
Maharashtra dairies, in the past couple of years, have had to slash procurement prices for cow milk from Rs 25-26 to Rs 16-18 per litre, following SMP realisations crashing from Rs 240-250 to Rs 140-150 a kg with a collapse of export markets. “KMF even sold at Rs 135/kg, which it could do because of the Rs 5/litre subsidy. The subsidy enabled Karnataka farmers to get a price of Rs 23, while we could only pay Rs 18,” he added.
Since November, SMP prices have rebounded to Rs 240-250 per kg — mainly due to milk shortages resulting from the previous years’ droughts and farmers cutting back on herd sizes — before easing to Rs 210-220 in the last one month or so. The dairies, too, have hiked milk prices to Rs 27-28 per litre. “At current SMP realisations, we should be paying only Rs 24-25, but any such reduction is ruled out in the present scenario of farmer unrest,” the dairy company official admitted.
The Maharashtra dairy industry is now seeking a check on the influx of subsidised milk/powder from Karnataka, “which ultimately hurts our farmers”. The official likened the Rs 5/litre subsidy by the Karnataka government to the European Union’s price-distorting support to its milk producers: “The effects are the same. In one case, you are dumping subsidised SMP and fat into the global markets. Here, the same is being done to the industry and farmers of neighbouring states, especially Maharashtra”.
A senior KMF official, however, rubbished these allegations. “How have they arrived at this 20-21 LLPD surplus procurement estimate? We also consume 3.5-4 LLPD for other products (ice-cream, flavoured milk, paneer, cheese and various milk sweets), besides 6 LLPD for our Ksheera Bhagya scheme of free supply to all schoolchildren. If you exclude these, the so-called surplus is not more than 10 LLPD,” he told The Indian Express.
The official further blamed Maharashtra’s industry for the current problems. “We sell even in Maharashtra because our product, whether it is Nandini milk or powder, is of better quality than what they make. And unlike their dairies, we buy every litre that our farmers pour. Moreover, what stops the Maharashtra government from offering similar incentives to its farmers?” he shot back.
The Rs 5/litre “incentive” to milk producers is expected to cost the Siddaramaiah government Rs 1,206 crore in the current financial year. The latest 2017-18 Budget has also announced extending the 150-ml of free daily milk supply to 1.19 crore children in schools and anganwadis under Ksheera Bhagya to five days of the week — as against three now — from July 1. The annual outlay for this scheme is another Rs 700 crore.
With assembly elections in Karnataka due in May 2018, any rollback in the Rs 5/litre subsidy would be too much to expect. While the Devendra Fadnavis administration in Maharashtra may be tempted to follow suit — the seeds for it in Karnataka were also, after all, sown by a BJP chief minister — there is a significant impediment. In Maharashtra, the bulk of milk procurement is done by private dairies. That raises attendant problems of a different kind.