In these times of slowdown, companies would think twice before raising product prices. But Tamil Nadu Cooperative Milk Producers’ Federation — better known as Aavin — has revised upwards its sale price of milk by Rs 6 per litre. That increase, effective from August 19, works out to 16.2% for
toned and 13.3% for full-cream milk, which will now retail at Rs 43 and Rs 51 per litre, respectively.
The new rates aren’t unreasonable. Toned milk (containing 3% fat and 8.5% solids-not-fat or SNF) of Amul, Mother Dairy and other major brands is currently priced at Rs 43-44 per litre in Mumbai, Delhi and Kolkata, while at Rs 52-56 for full-cream with 6% fat and 9% SNF. High-fat milk is, thus, still cheaper in Chennai. The issue really is not price, but the extent of revision and how late it has come. The TN government allowed Aavin milk prices to go up last in November 2014 — then, too, by a hefty Rs 10/litre.
But TN isn’t the only state that has forced its cooperatives to keep prices artificially low for consumers. Even more glaring is Karnataka. Aavin accounts for only 22-22.5 lakh litres per day (LLPD) of TN’s estimated 50 LLPD branded liquid milk market. The balance 27.5-28 LLPD share is of private players such as Hatsun Agro Product, Heritage Foods, Tirumala Milk Products, Godrej Creamline and Dodla Dairy. They were selling toned and full-cream milk at Rs 40-43 and Rs 52-56 per litre, respectively, even before Aavin’s recent catch-up hike.
This is not so with Karnataka. There, the Karnataka Cooperative Milk Producers’ Federation (KMF) commands a virtual monopoly, with its Nandini brand selling some 35 LLPD. Others put together do 8-10 LLPD at most. And Nandini toned milk retails at just Rs 36 per litre, while Rs 46 for full-cream.
The problem, however, isn’t simply that. Karnataka, unlike TN, also gives a per-litre “incentive” to farmers over and above the procurement price paid by KMF’s district dairy unions. What started as a Rs 2/litre subsidy during the then BJP government under B.S. Yediyurappa in July 2008 was raised in phases, to Rs 5, by the Siddaramaiah-led Congress regime. It was further increased to Rs 6 per litre in the 2019-20 budget that the last Janata Dal (Secular)-Congress government of H.D. Kumaraswamy presented in February.
The producer subsidy did three things.
First, milk procurement by KMF unions soared, from an average of 29.4 LLPD in 2007-08 to 72.6 LLPD in 2018-19. Second, faced with a flood of milk and insufficient powder plant capacity with KMF to handle this excess, the Siddaramaiah government, in August 2013, launched a Ksheera Bhagya scheme. It provides a 150-ml glass of free milk to about 1.04 crore children in government schools and pre-school anganwadi centers for five days of the week. The producer subsidy alone is budgeted at Rs 1,459 crore in 2019-20, with Ksheera Bhagya costing another Rs 1,043 crore.
It is the third effect that has proved deleterious. With Ksheera Bhagya (which consumes around 8 LLPD) unable to absorb all the extra milk (average procurement had crossed 63 LLPD by 2015-16), KMF began marketing the surplus in other states. Nandini milk in Karnataka is already the cheapest in the country. But now, its toned milk is being retailed at Rs 37/litre in Pune and Rs 39 in Mumbai, compared to the competition’s Rs 42-44. Even in Hyderabad, Nandini toned milk is selling for Rs 40/litre and full-cream at Rs 52, as against the Rs 42-44 and Rs 56-58 of other brands.
“This is nothing but dumping using taxpayer money. They are dumping milk and also commodities (powder and ghee),” avers an industry source. The allegation isn’t without basis. KMF unions are at present paying farmers Rs 22.5-25 per litre for cow milk with 3.5% fat and 8.5% SNF. The same milk is being procured at Rs 27-28.5 by dairies in Maharashtra and Andhra Pradesh’s Chittoor belt, while Aavin’s Dindigul district union is offering farmers Rs 29.97/litre. Even before Aavin’s latest retail price revision, it was paying Rs 26.03.
Simply put, net of the Rs 6/litre producer incentive, Karnataka’s farmers are getting less than their counterparts in Maharashtra, AP or TN. The subsidy has, in effect, helped KMF to source milk cheaper than dairies in other states. This milk it is, then, “dumping”, including by converting into commodities at third-party processing plants. Other dairies have, in turn, had to slash their milk prices in order to compete with KMF’s power and ghee. Till over a year ago, when skimmed milk powder rates were Rs 135-140 per kg (they have since recovered to Rs 225-plus), KMF unions were paying Rs 20-21/litre. Maharashtra farmers were also realising nearly the same, sans any government subsidy.
“How can we complain about dumping by New Zealand or European Union, when our own dairies are doing it internally? Nobody minds if producers are given subsidy or milk is distributed free in government schools. But taxpayer money should not be allowed to depress prices. And why must the IT engineer in Bengaluru get milk cheaper than the autoworker in Gurugram?,” the earlier-quoted source points out.
It’s high time that cooperatives are freed from government clutches. The model should be Gujarat, where Amul’s pricing and marketing strategy is decided by professionals reporting to an elected board. And let state support be extended to farmers supplying to all dairies, cooperative or private.