Opinion How shortfall in milk will impact the market

With maximum temperatures not really surging enough to cause yield losses in wheat, concerns over cereal inflation are slowly abating. That falling global prices have made imports more feasible — Chicago wheat futures are trading below $260 per tonne, against the $500-plus peaks scaled a year ago — adds to the relative comfort. But this isn’t so in milk, where October-March is the “flush” season when buffaloes and cows normally produce more. The surplus is converted into skimmed milk powder (SMP), butter and ghee by dairies for reconstitution during the “lean” months (April-September), when heat stress and high humidity leads to lower production by animals. The current flush season has, however, seen dairies struggling to procure milk even for meeting winter and springtime demand. And they are entering the summer — when demand for curd, lassi, ice-cream and other products shoots up — with hardly any SMP or fat stocks. This is unlike in the case of wheat, where the new crop will start arriving from month-end.

The reason for the shortfall in milk is simple. During the Covid lockdown period, hardly three years ago, farmers were being paid Rs 18-20 per litre for cow milk and Rs 30-32 for buffalo milk. The demand destruction from the closure of hotels, restaurants and sweetshops, besides cancellation of weddings and social functions, forced dairies to slash procurement prices. Farmers responded by shrinking their herd sizes or underfeeding calves and pregnant cattle not giving milk. Those animals have, in turn, grown to be poor milkers. The resultant decline in supply — exacerbated by rising feed costs and fodder shortages — has come even as demand has returned with normalisation of economic activity. The same dairies that paid little are today procuring cow milk at Rs 38-39 and buffalo milk at Rs 52-54/litre. They aren’t getting enough milk even after that.

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No surprise, then, that consumer price inflation in milk was at 9.65 per cent in February. Dairies are having to raise prices, including through “shrinkflation” or charging the same for reduced pack sizes, as the Karnataka Milk Federation has done. All this is, moreover, happening before the summer, when supply could fall further amid higher demand. It makes imports inevitable. Butter fat imports now attract 40 per cent duty. For SMP, it is 15 per cent for up to 10,000 tonnes per year and 60 per cent for quantities beyond that. The government should allow the National Dairy Development Board to import both at zero duty for building a buffer stock to last through the coming “lean” season.