The Economics Of Milk: Price Hikes Hit India's Dairy Sector

Following India's completion of the 18th Lok Sabha elections, a surge in prices has emerged, notably in milk and tolls. India's top two milk cooperatives, Amul and Mother Dairy, have increased their milk prices by Rs 2, effective June 3. The full cream variants of Mother Dairy and Amul, previously priced at Rs 66 per litre, will now be Rs 68 per litre.

Mother Dairy, based in Noida, attributed its price hike to rising production costs over the past year. "The increase in consumer price is mainly to compensate the producers for increased production costs, which have been on the rise for over one year," the company stated.

Price Comparisons

If prices for 2023 were compared with the new prices, Mother Dairy's full cream and Amul's full cream milk (Gold) now cost Rs 68. A year ago, both variants were priced at Rs 66 per litre. Over the past two years, leading milk suppliers like Amul and Mother Dairy have hiked milk prices several times, citing increasing procurement costs from farmers.

Previous Hikes

For instance, Mother Dairy increased milk prices by Rs 10 per litre between March and December 2022. Amul hiked its prices thrice in 2022, while Mother Dairy had several rounds of price revisions. The last hike by Amul in 2022 was in October, while Mother Dairy's last hike was in December.

Reasons for Price Hikes

The main reason for multiple price hikes in 2022 was stagnant milk production in fiscal 2023 due to lumpy skin disease in cattle, said India's Animal Husbandry and Dairy Secretary, Rajesh Kumar Singh.

Inflation Data

Last month, India's retail inflation eased to an 11-month low of 4.83 per cent on an annual basis in April, compared to 4.85 per cent in March. Vegetable inflation stood at 27.80 per cent year-on-year, down from 28.30 per cent in March. Milk weighs nearly 6.61 per cent of the Consumer Price Index (CPI).

RBI Report

In its annual report, the Reserve Bank of India stated that increased prices in the food and beverages (F&B) category have been a major driver of India's inflation in FY24. F&B's contribution to the headline inflation was 60.3% in FY24, up from 46% a year ago. The RBI expects CPI inflation to ease to 4.5% in 2024-25.

Impact of Heatwave

Heatwave conditions in several parts of the country are expected to further impact milk production. "Despite higher milk procurement costs in recent months, consumer prices were maintained, but the heat stress across the country is expected to further impact milk production," said Mother Dairy.

Dairy Sector in India

In India, dairy is the largest agricultural commodity, contributing 5 per cent to the national economy and directly employing more than 8 crore farmers. India's prominence in the dairy sector is both national and global, as it ranks first in milk production, contributing 25 percent to the world's total milk output.