Let The Market Work

Context: While recently Amul has increased its milk prices, for dairy farmers, the increase is not commensurate to the increase in their feed and other costs. Free markets with the entry of the private sector in dairy can deliver success like ‘Operation flood’.

About Dairy Sector in India:

• Agri-importance: 
• Milk is India’s biggest agri-commodity in terms of value, greater than paddy, wheat, and sugarcane combined.
• India is the largest producer of milk in the world, with an estimated production of about 208 million tonnes in 2020-21, way above its closest competitor, the US, whose milk production hovers around 100 million.
• Dominated by smallholders with an average herd size of 4-5 animals.
• Privatisation: Milk sector was fully delicensed in 2002-03; 
• Milk production recorded a growth rate of 4.7 #between FY 2004 and FY 2014, which increased to 6% between FY 2015 and FY 2021. In comparison, cereals have been growing at about 1.6% per annum.
• As per a National Dairy Development Board (NDDB) report, the “capacity created by private dairy companies in the last 15 years is equivalent to the capacity set up by cooperatives in over 30 years”.
• Regulation: There is no minimum support price (MSP) for milk; Thus, the price of milk is largely determined by the overall forces of demand and supply.

Challenges in Dairy Sector:

• Low processing capacity: While Operation Flood in the 1970’s proposed a cooperative model, steered by Verghese, today cooperatives are processing only 10% of the overall milk production.
• Declining profits:  While Amul has raised the prices by only Rs 2/litre, the increase is only 4% increase as opposed to the overall inflation crossing the RBI’s mandated 6% mark.
  • This increase in milk prices is not commensurate to the increase in their feed and other costs, and they feel that their margins are getting squeezed.

Successful Dairypreneurs in India:

• Huge processing capacities: Hatsun Agro Products Ltd (HAP), based in Tamil Nadu, is the largest private-sector dairy company in India with milk procurement of 32 LLPD, with about 20 processing plants.
• Promising a farm-to-home experience of milk: For E.g. Country Delight is one such company that delivers fresh milk at the consumer’s doorstep and gives quality testing kits at home.
• Management of green fodder deficit: “The Indian Grassland and Fodder Research Institute — Vision 2050” estimates that India will have a green fodder deficit of about 30 % by 2030.
  • “Hydrogreens”, an agri-tech startup, provides solutions to the green fodder deficit through their “Kambala”, a hydroponic green fodder unit.
• Sexed-semen technology: Helps in predetermining the sex of offspring by sorting X and Y chromosomes from the natural sperm mix.
  • Although the current cost of sexed sorted semen is high, Maharashtra has taken a bold step in subsidising it for artificial insemination.
  • The BAIF Development Research Foundation provide quality sexed sorted semen from exotic and indigenous cattle and buffalo breeds.

Conclusion: Let prices be determined by market forces, with marginal support from the government or cooperatives at the most. The major focus should be on innovations to cut down costs, raise productivity, ensure food safety, and be globally competitive.