White Revolution has a long way to go

India may have emerged as the worlds largest milk producer, but consumers & dairy farmers are far from satisfied
SANJEEB MUKHERJEE & AJAY MODI
New Delhi, 2 June

ndias famed milk revolution has made it the worlds single-largest producer a sixth of global output comes from this country. It has been a steady rise; this past decade, for instance, has seen a yearly rise of almost four per cent in output, the total figure last year being about 120 million tonnes. Juxtapose this with the fact that milk prices for the consumer have doubled between 2002 and now. In the past three years, they have risen by close to 30 per cent. Also, as multitudes of consumers in this capital city would vouch, milk is often simply unavailable with most retailers, including the giant Mother Dairy chain, by evening. This city, again, was witness some days earlier to angry milkmen from different parts pouring tonnes of the precious liquid on the streets, to make a point about how uneconomic their livelihood had become. Just what is going on? How is the producer of a sixth of the planets milk beset with restive consumers complaining about repeated price rises, plus unavailability, while dairy farmers and milk traders grouse about their pathetic returns? Demand, supply This years Economic Survey pointed to one big reason, the continuous rise in demand. Milk production itself, it noted, had grown twice as fast this past decade than general agriculture and also world output. Also, thanks to the white revolution, the sector is relatively better organised, a success story worldwide, by helping smallholders into cooperatives and arranging an efficient collection, storage and distribution system. But demand has kept pace, it noted, proportionate with urbanisation. Monthly per capita liquid milk consumption in

This is to be expected. With urban areas (from National Sample Survey data) is far high- growing affluence anywhere, er (5.4 litres) than in rural theres a noticeable change in (4 litres); milk products (powder, food habits from cereals to more solids, paneer, cheese, others) protein-rich diets eggs, fish, consumption is overwhelmingly meat and milk and dairy produrban and fastest growing (over ucts. The Planning Commission 12 per cent per annum), a pat- says Indias annual milk requirement in 2021-22 should be tern seen worldwide... Sector experts also contest around 180 mt. To meet this the urbanites belief on regular, domestic demand, production sharp and unreasonable rises in has to rise by a bare minimum of retail prices. Every agricultur- 5.5 per cent in the next 10 years, al produce has seen sharp or else India would need to increases in recent years. But import huge quantities of milk the frequency of price hike is from the international markets, much lower in milk. Let us not said the Survey. just see last year. It was an exception, said R S Sodhi, Costs, structures managing director, Gujarat But, how? The biggest problem Cooperative Milk Marketing in milk today is the sudden and Federation, which sells milk unnatural rise in feed cost and milk products under the (maize and soymeal) in the last few years. The high famed Amul brand. cost has not only Sodhi adds that Demand for milk translated into less milk productivity was growing at continues to be low. around 6 mt yearly, margin for growers, but has also put We have been giv- while incremental them under pressure ing good prices to yearly production to sell at a higher farmers to encour- in the past 10 yrs price, says agriculage them in aug- was 3.5 mt tural economist and menting production. But more steps must be Planning Commission member taken under the National Dairy Abhijit Sen. He says animal feed Plan. We do not have any agency is becoming extremely costly, to stock buffer milk in powder leaving no option for growers but form in surplus seasons for use to raise the price of end-prodin years of shortage. This is a sur- ucts like milk. Our trade policy on animal plus year. If we had any agency like FCI (Food Corporation of feed is to be blamed to this mess. India), surplus could be We have no control on the export of maize and soymeal, which stocked, he said. Last years Economic Survey pushes up domestic prices, Sen estimated domestic demand for said. He said the skewed milk was growing at around six Minimum Support Price policy million tonnes yearly, while of the government is also to partincremental yearly production ly blame for sudden rises in milk in the past 10 years was around prices. If you raise the MSP of all 3.5 mt. Estimates differ on the other competing crops, milkmen actual figures, since so much of expect the same for their prothe sector is not organised; dairy duce as well because their cost of co-operatives, for instance, col- production is also rising, he lected less than 10 mt last year of notes. However, like Amuls Sodhi, the 121 mt total output. Yet, none disagree on this trend of demand he says last years surge was racing ahead of output rise. exceptional and an after-effect Technopak, for instance, says of the severe 2009 drought. It milk supply growth is six per was one of the worst droughts in cent yearly against demand 30 years, whose effect on animals continued in 2010 and 2011. growth of eight per cent.

Also, the sharp rise in rural incomes because of programmes like MNREGS (the rural job guarantee scheme) is also coming down to realistic levels. Hence, I dont foresee a sharp spike in milk prices in the immediate future, Sen added. Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices, said milk demand growth was almost four to five times higher than that for cereals. When income rises, demand for milk and milk products increases fast. Also, fodder cost is growing at an astronomical speed because of an almost 40 per cent shortage in production, he said. Gulati suggests the dairy sector needs to come out of small, fragmented activity to a highly organised one. Dairy as a household activity wont be enough to sustain Indian demand. We need to lift the size of dairies from the current 1-2 animals (each) to at least 20 animals. This, when supplemented with modern technologies, could provide the answer to Indias problems in the milk sector, he said. Way forward One good thing for producers, and thus for distribution, is the entry of private players as a competitor for the produce. Recent entrants to the milk retailing business include Reliance Dairy, Kwality Dairy, Paras, Gopaljee and so on. Liquid milk as a category is still underdeveloped in India. It is good that more players, especially from the private sector are entering this area, said Sodhi. There are others like Sterling Agro and SMC Foods that have solely focused on milk-based products such as skimmed powder, etc. Again, a new segment in trading is opening where companies procure milk and supply to the dairy industry for further processing. Hariyali Bazaar, the rural retail arm of DCM Shriram

Consolidated, began this a couple of years before. Hariyali is procuring up to 23,000 litres of milk daily from Uttar Pradesh and Rajasthan daily, supplying to milk powder makers. As a result of the entry of organised companies, both from the cooperative sector and the private sector, farmers benefit. They get paid in cash thrice every month in most places for the milk sold to these companies. Farmers get a price on the basis of the fat content in both cow and buffalo milk. Sodhi said most milk companies charge ~6-7 per litre as the value addition from end-consumers. This money is required to cover various heads like procurement, transportation from farmers to the processing unit and from unit to dealers/retailers, processing cost, margins for dealers/retailers, marketing expenditure, etc, he explained. At village Barauli Gujar near Agra, there are three entities Mother Dairy, Sterling Agro and Paras Dairy competing for the milk. Milkmen used to get as little as ~15 per litre before these organised players entered the region. We get as much ~25 to ~32 per litre for the milk, depending on its fat content. However, with the recent cost push on cattle feed, we need higher prices, said Raghuvir Singh Tomar, a progressive farmer having 60 cows and buffaloes. The cattle, he explains, give milk for not more than seven to eight months during the year, but costs remain stable through the year. The National Dairy Development Board hopes to address some of these issues in its ~17,000-crore, 15-year, National Dairy Plan. The aim is to double milk production over the next 15 years and the first phase, of six years, got going last month. About ~2,200 crore has been allocated for projects to enhance artificial insemination, fodder development, and village-level education and procurement.

THE ECONOMICS OF MILK SUPPLY CHAIN

PRICE PAID TO MILK FARMER IN VILLAGE BY DAIRY NOMINATED AGENT/SOCIETY- ~25-32/LITRE

DAIRY SECTOR IN NEED OF A REVAMP

The dairy sector needs to come out of small, fragmented activity to become highly organised, in order to give a boost to the White Revolution

THE AGENT/SOCIETY GETS 2-5 PER CENT COMMISSION MILK TRANSPORTED TO CHILLING CENTRE- ~0.50/LITRE COST OF CHILLING-~0.50/LITRE TRANSPORTATION TO DAIRY~0.50/LITRE COST OF PROCESSING & PACKAGING-~3/LITRE TRANSPORTATION TO MARKET-~0.50/LITRE DISTRIBUTOR MARGIN-~1/LITRE

AVERAGE ANNUAL MILK PRICES

Place 2009 2010 2011 2012* % rise since09

Delhi 21 Mumbai 21 All India 22

Figures in ~/litre

23 26 24

27 31 27

29 36 30.5

38 71 39

PER CAPITA AVAILABILITY

YEAR MILK production (in million tonnes) Per capita availability (in grams per day)

RETAILER MARGIN-~1/LITRE PRICE TO CONSUMERS VARIES FROM ~30 TO RS 40/LITRE (IN DELHI)

05-06 06-07 07-08 08-09 09-10 10-11 11-12

97.1 103 108 112 116 122 130

241 251 260 266 273 281 (provisional)

SOURCE: Department of Consumer Affairs

To meet the growing domestic demand, milk production has to rise by at least 5.5 per cent in the next 10 years, or else India would need to import huge quantities of milk, according to the Economic Survey

* The prices may not add up exactly since milk procured at different prices are pooled and processed to make toned, double-toned and fullcream varieties