Milk is a unique “crop” that farmers harvest daily. But being also consumed daily, supply-demand balancing isn’t as difficult as in, say, wheat that is harvested over 2-3 months and has to be stocked to enable round-the-year sales. While production of milk is subject to seasonal fluctuations — animals, particularly buffaloes, produce more during winter-spring and less in the summer — dairies know to manage it. They usually convert the surplus milk of the “flush” season into skimmed milk powder (SMP) and ghee/butter for reconstitution in the “lean” months, when demand for curd, lassi and ice-cream also goes up. This system has generally worked well. Even as India’s milk output has more than doubled in the last 15 years, so too has consumption, on the back of rising incomes. Dairies, then, have rarely been saddled with unsold inventories, unlike sugar mills or the Food Corporation of India.
The above balancing model is, however, being rendered dysfunctional by the demand destruction wrought by the post-COVID shutdown of hotels, restaurants, hostels, canteens and mithai shops, apart from nearly no marriages and other social functions taking place. With institutional sales collapsing — these make up a quarter of the country’s market for milk and milk products — dairies have been accumulating powder and fat stocks through the summer and monsoon months. Not only is this unprecedented, the situation will worsen once production increases in the coming months with improved fodder availability, calving of buffaloes and drop in temperatures. A lacklustre festival season — this time’s Dussehra and Diwali may not see much demand for sweets made from ghee, khoya or chenna — isn’t going to help either. Dairies selling only commodities (SMP and ghee) have already, since the March 25 lockdown, slashed milk prices by Rs 10-13 per litre. Even those largely into liquid milk marketing have cut by Rs 3-5/litre.
The government should direct the National Dairy Development Board to create a buffer stock of about 60,000 tonnes of SMP and 30,000 tonnes of butter. The cost of this — at Rs 200/kg for SMP and Rs 300/kg for butter, corresponding to a Rs 25/litre cow milk procurement price — may come to around Rs 2,100 crore, which isn’t too high. It can well be recouped in the next “lean” summer season, when some demand normalcy would also have returned. Not intervening now will hurt farmers. If they were to respond by not properly feeding or even starving their animals, it would harm consumers as well.