Days after they started distributing milk free of cost to protest against low procurement prices, dairy farmers in Maharashtra have threatened to take their protest all the way to Mantralaya in Mumbai. They want to intensify their protest as they say the state government has failed to ensure payment at the rate of Rs 27 per litre. Dairies, meanwhile, have cited low international prices of skimmed milk powder and the introduction of Goods and Services Tax on byproducts like ghee as the reasons behind their inability to pay better prices. Here is why the state’s milk sector has been in the throes of a crisis for weeks
Since last August, dairy farmers in Maharashtra have been in the grip of a vicious cycle of lower realisations as dairies — both cooperative and private ones — have slashed their procurement prices. Despite the government declaring price of Rs 27 per litre for milk with 3.5 per cent fat and 8.5 per cent solid not fat, farmers are only receiving an amount between Rs 17 to -25.
Their woes are compounded by the fact that while this is usually a lean season for milk production, March and April have recorded all-time high milk production figures. By the end of March, the state was reporting collection of around 1.47 crore litres of milk, as against 1.12 crore litres in the same period last year. So, farmers are getting lower prices at a time when they usually see their earnings double.
Trying to find a solution
Recently, directors and proprietors of dairy firms across Maharashtra met to discuss a way out of the impasse. A general consensus was the need for the state government to adopt the Karnataka model of giving direct subsidy to farmers.
While the state government has announced a Rs 3 per litre subsidy for dairy owners, it has linked it to the production of SMP. State Minister for Animal Husbandry, Dairy Development and Fisheries, Mahadev Jankar, has said the subsidy will be given to dairies which produce 20 per cent more SMP than they had done in March for the next 30 days.
Instead of linking the incentive to production of SMP, the dairy firms want the state government to provide the subsidy directly to farmers who are bearing the brunt of low procurement prices. Such a move will insulate farmers as well as the dairies from ongoing losses, said dairy owners.
A unique protest
A group of farmers in Aurangabad have launched a unique protest — they are distributing milk free of cost to draw attention to their plight. Their basic demand is that the dairies pay them the government declared price of Rs 27. They have also cited the example of Karnataka, where the minimum earning of dairy farmers is Rs 27 because of the Rs 5 per litre subsidy given by the state government.
The SMP problem
Dairies usually convert around 70 per cent of their procured milk into anhydrous powder for future use. The anhydrous powder can be reconverted into liquid milk or can be traded in the international or domestic markets at a premium. In Maharashtra, 16 private dairies and six cooperative unions have the necessary set-up to prepare the powder. Dairies that don’t have the requisite set-up sell their excess milk to them.
Since May 2017, SMP prices at Global Dairy Trade — the fortnightly online auction platform of New Zealand’s dairy giant Fonterra — have remained below the $2,000 per tonne mark. In fact, their prices are close to the all-time low price of $ 1,419 per tonne in August 2015 and way below the record $5,142 scaled in April 2013.
Because of the fall in global prices, domestic SMP realisations have also dropped from Rs 220-225 to Rs 134-140 per kg between January and May. As the cost of production of SMP is estimated at Rs 200-215 per kg, exports are not a feasible option for dairies right now. Given the slump in SMP prices, dairies are being forced to sell their excess milk at throwaway prices of Rs 18-19 per litre to powder manufacturers.
Over the last two years, the export of SMP has seen a record dip as dairy firms prefer to hold on their commodity rather than incur losses. The government’s move will just add more than 2,400 tonnes to the already existing stock of over 27,000 tonnes of SMP in the state.
The dairies have pointed out that as there’s no guarantee that prices in international markets will recover any time soon, once the subsidy period ends, they will be saddled with excess powder that will further bring down their operating margins.
Dairies in Maharashtra have sought an initiative similar to Kshera Dhare, a scheme by the Karnataka government for dairy farmers. The scheme pays farmers Rs 5 per litre of milk and the state’s budgetary outlay for the scheme is more than Rs 1,200 crore.
This subsidy helps meet two goals —assured realisation for farmers and an almost 2.3 times increase in milk procurement by the Karantaka Milk Marketing Federation In Maharashtra, farmers don’t have a direct subsidy and often depend entirely on dairies, which are forced to reduce procurement prices in times of crisis.