Most state governments during the months of June-July increased milk prices by ₹1-2 per litre. The rise in prices seemed logical, considering the oppressive heat wave conditions in the preceding months, which would have impacted milk production. However, what is worrisome is the fact that the world’s largest milk producer is witnessing a slowdown in production year after year. From a growth rate of 5.81% in FY21 (222.7 million metric tonnes per annum), FY24 witnessed an all-time low growth of 3.78% (239.3 million metric tonnes).

The Genesis

India’s milk shortfall has been intermittent since the COVID-19 pandemic. While one may have heard about private milk consumption increasing during the pandemic, there was a close to 40% dip in institutional demand, which severely impacted the dairy industry at large. “Since there was a dip in demand, most dairies ended up with more milk. The excess milk got converted to commodities (such as skimmed milk powder), and when that commodity came to the market, the price of the commodity crashed by 20%-25%. As a result, most of the private dairies reduced the price they paid to farmers. During that time when farmers were getting paid less, they were paying more for fodder, as cereal cost had increased. They started cutting down on feed cost and even invested less on new animals.” explains R.S. Sodhi, former Amul MD (currently president, India Dairy Association).

Cut to FY 22-23, most dairies reported a 7-8% deficit in milk production. The flush season (the winter months of October to March, when milk production usually goes up) reported a shortage in milk production. The shortage of milk was also attributed to the fatal lumpy skin disease contracted by the cattle. Farmers were unable to add new cows/buffaloes to their herd. Milk prices had shot up by 15-18%. Though the situation did improve in the months that followed, milk procurement has remained uneven. Experts claim that Diwali 2024 saw a shortage of both cow and buffalo milk.

The Challenge 

What ails the Indian dairy industry? Climate change (extreme summers and winters) could be a reason for the dip in production, but dairy industry experts attribute the downfall to a systemic fault. The need of the hour is a change in processes. “We were growing because the main stakeholder, the farmer, was getting a good price for the produce, so he was producing more. The consumers were getting a great product at an affordable price, so they were consuming more. The industry needs to bring back the old supply chain efficiency,” points out the former Amul MD. When he says supply chain efficiency, Sodhi refers to the fluctuating prices paid by the cooperatives as well as the private dairies to farmers. When milk production is low, the farmers are paid more, but during the flush season, when there is enough milk many dairies reduce the payment. “There was a time when 85% of the milk price paid by the consumer went to the farmer. Today, in many states the farmer is paid just 55%, while others pay 78-80%. If the farmer isn’t paid well, how will he nurture his herd and improve productivity?,” questions Sodhi.

A farmer typically gets paid anywhere between ₹32-36 per litre of milk in good times. In fact, during the pandemic, the procurement rate had dipped to as low as ₹18-19 per litre. These fluctuating procurement prices are demotivating the farmer, points out dairy industry expert, Aditya Jha.

“Animal feed cost has gone up (almost 25%-30%), and in an environment where milk pricing is constantly fluctuating, the farmer’s life becomes difficult. During the winter months, when there is surplus, they are paid less and in summer, they get slightly more. The Indian dairy industry is unfortunately not seller-driven. Poorer the state, the prices fluctuate even more,” explains Jha, who stresses upon the need to have a minimum support price for milk across the country. “It has to be mandated that the dairies can’t pay less than ₹35-36 for a litre of milk at any given time of the year,” he further adds.

The challenge, therefore, is not as much inflation or rise in animal feed prices. It’s the system which is flawed. A cow in India on an average produces 10 litres of milk per day, while the global average is 40 litres per day. Milk consumption is increasing by 5-6% per year, but production has dipped to 3.78%. Rahul Kumar, COO, Parag Milk Foods, says that the productivity of the cattle is extremely low. “We are not doing anything to ensure that milk is produced in abundance. Cattle feed management and breed improvement is not happening. The milk yield per animal is quite low. When you increase the price of the milk you pay less to the farmer and when you pay less to the farmer they can’t feed properly, and the productivity comes down. It leads to problems in fertility and calving, which reduces milk production. Most farmers don’t want to add cows as they are not earning much with the existing herd,” explains Kumar.

Need of the hour

“Per-animal productivity must be improved through a scientific approach. The production is so scattered that nobody can monitor. The farmers have no idea what to feed,” Kumar further adds. The former Amul MD agrees. “We need to increase productivity without increasing the cost of production of milk so that the consumer can afford more consumption. If consumption increases, you won’t be sitting on surplus inventory of milk powder, which also impacts farm gate pricing,” Sodhi explains. When milk production reduces during the summer months, while some dairies end up paying farmers a premium to procure milk, many convert the excess milk they procure during the winter months into skimmed milk powder, which they convert into liquid milk when there is shortage of milk. This also leads to fluctuation in pricing.

The Ministry of Animal Husbandry has launched a dairy infrastructure fund, but dairy industry experts believe that the fund has not really helped in solving the challenges at the farmer’s end. “It is a ₹15,000 crore fund meant to improvise dairy infrastructure, such as setting up processing plants and so on. However, most cooperatives are not profitable enough to afford a ₹500-600 crore loan. Building a plant doesn’t help in milk production at the village level. In the last 7-8 years, investment at the village level to increase production is completely missing,” says dairy industry expert Jha.

Parag’s Kumar cautions about another round of increase in milk prices in the next few months. “If milk consumption is growing by 5-6% and your production is restricted to 3.78%, there will certainly be an impact on pricing.”

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