How Covid-19 moved India from milk shortage to glut in a few months

The restrictions imposed in March led to a sharp slump in demand from bulk consumers like hotels, restaurants, and roadside tea stalls, as they were forced to shut down.

Sales of major milk products such as ice-cream, butter milk, and cheese, which usually spike during summer, also dropped.

The lockdown imposed to curb the spread of Covid-19 came at the wrong time for the nearly 70 million dairy farmers across India, as it did for most other sectors.

After consecutive years of subdued prices, milk procurement rates had started rising in the 2019-20 flush season, providing much-needed cash to the farmers.

However, the restrictions imposed in March led to a sharp slump in demand from bulk consumers like hotels, restaurants, and roadside tea stalls, as they were forced to shut down.

Sales of major milk products such as ice-cream, butter milk, and cheese, which usually spike during summer, also dropped.

The result was the drop in procurement by private and cooperative dairies.

Reports suggest the procurement price of buffalo milk has fallen by 20-40 per cent since April, and the decline in the case of cow’s milk is even higher.

What is worrying is that this fall has come during the lean season, when prices generally move north, as supplies are low.

This wasn’t the case till as recently as February.

In fact, between November 2019 and February 2020, procurement prices rose by about 20 per cent in most parts of the country and over 35 per cent in some areas.

For farmers, particularly in commodities like milk, where more than 80 per cent of the consumer price gets transferred to the farmer’s account, this increase was a much-needed reversal of the trend of the previous three years of low price realisation.

SMP prices, which were hovering around Rs 150-170 a kg just a year back, doubled to Rs 310-320 by late February-early March.

Butter was quoting at about Rs 290-310 a kg, while cheese was selling at Rs 350 per kg.

SMP stocks plunged to 30,000-40,000 tonnes, compared with the norm of around 125,000 tonnes ahead of the lean season.

Post lockdown

The scenario changed after the lockdown.

The dairies that were chasing farmers till recently started lowering rates as demand dropped.

Though the state governments stepped in with some support mechanisms, like in Maharashtra, it wasn’t enough.

The surplus milk that small private dairies refused to procure, came into the cooperative basket while there wasn’t any increase in sales of high-value items such as ice-cream and butter milk.

During the lockdown, average daily procurement by cooperative dairies fell by 3.4 per cent over the previous year, but daily sales dropped by almost 9 per cent, leading to a pile up of inventory.

Industry players say though there has been a demand pick up since July after the government eased restrictions and the difference between procurement and sales has narrowed to 9 per cent from 13 per cent in April-June, the gap is still high.

According to industry sources, cooperative unions currently hold about 170,000 tonnes of SMP, or 62 per cent more than the corresponding period last year, 104,000 tonnes of butter (40.50 per cent more) and 22,000 tonnes of ghee (47 per cent more).

Of the total milk production in India, estimated at over 180 MT, about 48 per cent is either consumed at the producer level or sold to non-producers in rural areas.

The remaining 52 per cent is the marketable surplus.

No relief for consumers

The consumer retail price, however, didn’t slump during the lockdown, according to data from the Department of Consumer Affairs.

In fact, in some cities it rose by Rs 2-8 per litre, even as farmers’ procurement rates dropped sharply.

The big worry is that the country is now flush with surplus milk and milk products.

So, procurement won’t pick up till this stock is liquidated.

But that won’t stop farmers from selling milk as the flush season starts.

This will mean milk will be available in abundance and if dairies and cooperatives cut down on procurement, prices will crash further and could devastate rural households as milk is one of easiest forms of quick cash for them.

One avenue to clear inventory is exports.

The global market has some demand for Indian milk and if some subsidy is given, the surplus can be pushed out.

The second option is for state governments to start free milk distribution schemes at hospitals, through anganwadi centres or schools.

A third option that some experts are advocating for is creating a buffer stock of milk powder.

Cooperative dairies, meanwhile, have approached the Centre for export sops.

They have pressed for including dairy products in the Transport and Marketing Assistance Scheme (TMAS) for agriculture products.

That apart, they want export incentives under the revamped Merchandise Exports from India Scheme (MEIS) to be raised to 20 per cent from the current 5 per cent.

Photograph: Reuters