Why dairies, farmers aren’t pleased with the state’s Rs 5/litre subsidy

What is the subsidy and why was this announced?

Last week, Deputy Chief Minister Ajit Pawar announced a susbsidy of Rs 5/litre to be paid to dairy farmers to stabilise milk prices. The subsidy will be paid only if dairies pay their farmers a base price of Rs 30/litre for milk with 3.5 per cent fat and 8.5 per cent SNF (solid not fat). The subsidy will be paid directly to farmers’ accounts once the dairies submit the details of payment. Pawar said this will ensure farmers get a procurement price of Rs 35/litre of milk sold by them. On a daily basis, the state reports procurement of 1.62 crore litres of milk and this subsidy was started on July 1.

After the drubbing the Mahayuti received in the recently held Lok Sabha polls, this subsidy was seen as a measure to assuage the anger among dairy farmers in the state. Under the umbrella of the Milk Producers Resistance Movement, farmers have been agitating for a mimimum procurement price of Rs 40/litre. This, they said, was necessary given the increased cost of production in view of the drought as well as increased cost of inputs like feed as well as fresh and dried fodder. Supported by the All India Kisan Sabha – the farmers’ wing of the CPI(M) – they have held continuous meetings with dairy development minister Radhakrishna Vikhe Patil but have failed to come to any conclusion.

So why are dairies not happy with this subsidy?

Procurement price of milk, i.e., the price paid by dairies for milk purchased from farmers, is dependent on, among other things, the price of fat and skimmed milk powder (SMP). SMP is the anhydrous powdery substance obtained from milk after the fat is extracted from liquid milk. Other than liquid milk in pouches, dairies sell products such as butter, ghee, ice cream, etc., and excess milk obtained is converted into commodities like fat and SMP. At present fat is sold at Rs 315/kg while SMP is around Rs 205-210/kg.

A back of the envelope calculation points to 100 litres of milk (102.5 kg) producing 3.598 kg of fat and 8.738 kg of SMP. At the present rate, the gross realisation for a dairy from processing 100 litres of milk would be Rs 3,371 (Rs 1,835 from SMP and Rs 1,536 from fat). With an average cost of transportation and processing of Rs 7/litre, the maximum procurement price dairies say they can pay to their farmers is Rs 26.71/litre. Gopalrao Mhaske, president of the Milk Producers and Processors Welfare Union (an umbrella body of private and cooperative dairies in Maharashtra), said, in order to meet the government’s base price of Rs 30, the dairies would have to pay an additional Rs 3/litre. Last weekend, the union had decided to increase the selling price of pouched milk by Rs 2/litre. “This was necessary – dairies would not be able to pay Rs 3/litre on their own. We will absorb Rs 1/litre as extra cost to us,” he said.

Another worry for the dairies is the non-viability of SMP and white butter exports, given the dip in international prices. This has led to the country to accumulate around 2.5-3 lakh tonnes of SMP which would continue to rise as milk production will increase in the upcoming flush season — the season when animals produce more milk thanks to the better availability of the water and green fodder. This will happen post September — the time when Maharashtra goes to polls.

A private dairy owner from Solapur said the only way to correct this situation was to ensure SMP stocks were liquidated. “Be it through the creation of a buffer stock or export subsidy, the SMP stocks have to be reduced without which the situation will not improve,” the owner said.

Why have farmers continued their protest?

Most dairy farmers have said the Rs 35/litre price is not enough to make ends meet. Amarsinh Kadam, a dairy farmer from Pune, said, at present their cost of production is around Rs 40/litre. “Over the last few months we have been in constant losses — this subsidy does not make much sense,” he said.