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Explained: Milk price hiked; where in India is milk the cheapest now — and why?

Bengaluru is the city where you can get milk cheaper than anywhere else in the country. What started out as an incentive for Karnataka’s dairy farmers 14 years ago has ended up as a subsidy for milk consumers in Bengaluru.

mother dairy, indian expressAmul on Tuesday (August 16) announced an across-the-board Rs-2 increase in the prices of its Gold, Shakti, and Taaza brands of milk. ( Facebook/Mother Dairy)

Amul on Tuesday (August 16) announced an across-the-board Rs-2 increase in the prices of its toned and full-cream milk.

The Gujarat Cooperative Milk Marketing Federation (GCMMF), which markets its dairy products under the Amul brand, said in a statement that the new prices will be effective from August 17 “in the markets of Ahmedabad and Saurashtra region in Gujarat, Delhi NCR,West Bengal, Mumbai, and all other markets where Amul milk is sold”.

Also on August 16, Mother Dairy announced that it had been “compelled” to increase the price of milk by Rs 2 per litre in Delhi-NCR with effect from August 17 to factor in the rise in procurement and other input costs.

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So in which city of India does milk retail the cheapest?

It is not the cities of Delhi, Mumbai, and Kolkata, and their surrounding areas, where the market leader GCMMF has just raised the maximum retail price of its Amul ‘toned’ and ‘full-cream’ milk by Rs 2 to Rs 52 and Rs 62 per litre, respectively. It is not Chennai and Hyderabad either. The local dairies cooperatives in those two cities (known by their ‘Aavin’ and ‘Vijaya’ brands respectively) are marketing toned milk at Rs 40 and Rs 52 per litre, and full-cream milk at Rs 48 and Rs 66 per litre respectively.

Overall, milk costs more in Delhi, Mumbai and Kolkata than in Chennai, although not as much as in Hyderabad. This situation has not been changed by the increase in milk prices announced on August 16.

But the city where milk is the least expensive in India is Bengaluru. In the IT capital or Silicon Valley of India, consumers get ‘Nandini’ (the brand of the Karnataka Cooperative Milk Producers’ Federation or KMF) toned and full-cream milk for only Rs 38 and Rs 46 per litre respectively.

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And what is the difference between ‘toned’ and ‘full-cream’ milk?

Milk has water and solids, which includes both fat and non-fat (basically proteins, sugar, vitamins, and minerals). Toned milk contains minimum 3% fat and 8.5% solids-not-fat (SNF), while correspondingly higher at 6% and 9% for full-cream milk.

In between these are ‘double-toned’ (1.5% fat and 9% SNF) and ‘standardized’ (4.5% and 8.5%) milk.

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But why does the software engineer at Infosys or TCS in Bengaluru pay less for milk than the Maruti Suzuki assembly line worker and Uber cab driver in Gurugram?

It has to do with a Karnataka government scheme, which was former Chief Minister BS Yediyurappa’s baby, and which was continued by subsequent regimes.

The BJP government under Yediyurappa, from September 2008, started giving a Rs 2-per-litre incentive to farmers for the milk they supplied to the KMF-affiliated dairy unions, over and above the latter’s procurement price.

The Siddaramaiah-led Congress government, in May 2013, doubled the incentive and raised it further to Rs 5/ litre in November 2016. In November 2019, when Yediyurappa was back in powder, it was increased again to Rs 6/ litre.

The scheme’s impact can be seen in the table. In 2007-08, before its launch, the KMF unions procured an average 30.25 lakh kg per day (LKPD) of milk. By 2018-19, when spending on the scheme crossed Rs 1,460 crore, this had gone up nearly 2.5 times to 74.80 LKPD.

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Procurement has continued to rise, even with a slashing of outlay. KMF’s average milk procurement, at 81.66 LKPD in 2021-22, was next only to GCMMF’s 263.66 LKPD, making it the country’s second largest dairy concern.

 

While the price incentive scheme has given a huge stimulus to dairying in Karnataka, KMF’s milk sales haven’t, however, kept pace with soaring procurement. The cooperative does not have the processing infrastructure, nationwide marketing network or brand power of ‘Amul’ that GCMMF has built over several decades.

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KMF’s website shows its average sale volumes, inclusive of curd and UHT (ultra-heat treated/long-life) milk, at 49.7 lakh litres per day in 2021-22. That was well below its procurement of 81.7 LKPD (one litre of milk weighs about 1.03 kg).

A perverse outcome of KMF’s inability to absorb all the surplus milk collected by its unions is that what was intended as an incentive scheme for rural producers has ended up delivering a freebie to relatively prosperous urban folk.

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Karnataka’s farmers may be getting an extra Rs 6-per-litre for the milk they are pouring to dairy societies. But Bengaluru consumers are benefiting even more — paying Rs 14/ litre less for toned milk than those in Delhi or Mumbai.

But what’s wrong with a state subsidising both its farmers and consumers?

There is nothing in principle, although a subsidy for producers should ideally remain just that. In this case, the price incentive has seemingly resulted in overproduction.

In August 2013, the Siddaramaiah administration unveiled a separate Ksheera Bhagya scheme. Under it, some 64 lakh children in government/ government-aided schools and another 40 lakh in pre-school ‘anganwadi’ centres were served a 150-ml glass of free milk daily — initially for three working days, which was, from July 2017, extended to five days of the week. Ksheera Bhagya could absorb an additional average of up to 10 lakh litres per day.

But the scheme cost money: In 2019-20 alone, Rs 1,043 crore was budgeted, on top of Rs 1,459 crore for the producer incentive scheme. The actual amounts spent were less. Ksheera Bhagya has practically been discontinued post the Covid-19 pandemic. The price incentive scheme too, as already noted, has been facing a funding crunch.

Funds apart, are there any other issues?

One big problem, especially highlighted by dairies in other states, is the “dumping” of surplus milk by KMF. ‘Nandini’ toned milk is, for instance, being retailed in Hyderabad at Rs 45 per litre and standardized milk at Rs 48 — as against the corresponding Rs 52-56 per litre range of Telangana’s ‘Vijaya’ cooperative. The Rs 6-per-litre producer subsidy is basically leading to the KMF unions procuring far in excess of what can be absorbed within Karnataka.

This excess is, then, being “dumped” in other states, either as milk or in the form of commodities (milk powder, butter and ghee). The subsidy, it is alleged, is also helping KMF to source milk cheaper. If the Rs 6/litre incentive is deducted, farmers are realizing less than what many dairies in other states — whose governments do not provide such producer support — are paying.

Has any state tried to emulate Karnataka?

Telangana has, since September 2017, been offering a Rs 4-per-litre incentive to farmers supplying to cooperative dairies in the state.

Rajasthan began a similar scheme in February 2019, with a producer subsidy of Rs 2/litre that has since been enhanced to Rs 5/litre. The implementation of these has been patchy unlike in the case of Karnataka. The broad consensus among economists is that producer price support induces over-production in crops (and in countries/states) where these are extended. A better alternative is general income support, whether per-acre or per-farmer, that is crop agnostic and not market-distorting.

First published on: 16-08-2022 at 04:02:41 pm
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