MILK prices in India are on the rise as the cost of inputs, including fodder has risen sharply. Leading milk producers, including co-operatives, decided last week to jack up the price of milk and related products.

The Gujarat Co-operative Milk Marketing Federation (GCMMF), which sells its products under the Amul brand, has raised prices of pouched milk by five to seven per cent. GCMMF, which is one of the largest milk producers in the country, has decided to raise prices initially in Mumbai and Delhi to be followed later in other markets.

“The extended monsoon has led to scarcity of dry fodder,” says Managing Director of GCMMF R.S. Sodhi. “Fodder prices have increased by about 30 per cent. There has also been a 15 per cent rise in the price of cattle feed since September 2012.” He also cites the increase in the price of diesel and a general increase in labour costs for the hike in milk price.

According to Sodhi, while overall food price inflation remains high at 18.4 per cent and cattle feed prices have gone up by about 15 per cent, the federation has increased the price of its products by only 10 per cent this year.

Last week, the government released figures indicating that inflation accelerated to a seven-month high in September. The wholesale price index rose to 6.46 per cent (from 6.1 per cent in August), but lower than 8.07 per cent recorded in September 2012. Onion prices have shot up by 323 per cent on a year-on-year basis, while the price of vegetables has gone up by 90 per cent.

With elections to five state assemblies due next month and general elections scheduled around April-May in 2014, the government is worried about continuing high food inflation. The Reserve Bank of India has not been able to ease the tight monetary conditions because of inflation.

The GCMMF and other milk producers — both in the cooperative and private sector — claim that the hike in milk and dairy prices is negligible compared to food price inflation. Amul had hiked the price of products such as butter, paneer and cheese by about 10 per cent over the past few weeks. Milk prices have gone up by 62 per cent over the past four years, a period when tomato prices have doubled, onions have become dearer by 1.5 times and most other food prices have gone up sharply.

Producers such as the GCMMF procure milk from co-operatives and pay about 80 per cent of the price to the farmers. The federation procures nearly 12 million litres per day (lpd) of milk from its members. After the hike, Amul milk products will range between Rs30 a litre (for double-toned milk) to Rs44 (for full-cream milk).

INDIA is the world’s largest producer of milk, though yields are among the lowest in the world. This year, India’s milk production is expected to rise five per cent to touch 133 million tonnes. Amrita Patel, chairperson of the National Dairy Development Board (NDDB) notes that India’s milk production has gone up by 25 million tonnes over the last five years, as against marginal increases in production by other major milk producing nations such as the US (a 6.6 million-tonne increase over the last five years), China (5.4 million), New Zealand (2.7 million tonnes) and the European Union (1.6 million tonnes).

“This has been achieved by millions of small producers unlike advanced dairy nations which have the advantage of a temperate climate and farms with large animal holdings,” says Patel. “But we need to adopt a scientific approach with the same level of accountability on the part of all stakeholders, as is done in developed countries.”

The government, which is aiming for a second ‘white revolution,’ wants producers to improve practices and follow standard operating procedures. Till about 10 years ago, India did not have any regulation governing the quality of semen. Many of the semen labs were also not up to the mark.

Rapid changes in dietary habits, with a shift away from cereals to animal products, are also fuelling demand for milk. A recent report by Credit Suisse estimates that animal products (including milk, meat, eggs and fish) account for more than 30 per cent of India’s agricultural output. And animal products accounted for 37 per cent of agricultural growth between 2005 and 2011, says the report. The per capita consumption of foodgrains is declining in India, while that of milk, edible oil and meat is rising sharply.Credit Suisse estimates that milk production has been growing at a steady pace of four per cent over the past few years. Growth is due both because of an increase in the number of cattle and improvements in yield thanks to improved breeds of cow. The fat content of milk from cows in India is just 4.5 per cent, though buffaloes — which account for half of India’s milk production — give higher fat content.

Milk consumption is also expanding because of the growing demand for dairy products including paneer, cheese, butter, ice-creams and chocolates. All the leading dairies in India produce a wide range of products and advertise heavily in the media to boost consumption.

THE continued growth in milk production has also resulted in India emerging as a leading exporter of skimmed milk powder (SMP). While India is expected to produce about 133 million tonnes of milk this fiscal, domestic demand is pegged at around 128 million tonnes.

The government had in the past imposed a ban on export of SMP and milk products, worried about possible shortages and price hikes in the domestic market. But it lifted the ban on export of milk powder in June 2012, resulting in a spurt in exports.

The country processes nearly 400,000 tonnes of SMP and the industry is confident of exports topping 120,000 tonnes a year. Indian SMP prices are also significantly lower than the price of milk powder from New Zealand, resulting in growing demand, especially from the Middle East, Southeast Asia and even South Asia. Pakistan, Afghanistan and Bangladesh are among the major markets for Indian skimmed milk powder.

The Managing Director of GCMMF R.S.Sodhi expects the federation to export nearly 20,000 tonnes of its Amul SMP this fiscal, as against just 4,000 tonnes last year. “The demand is strong and we expect our milk powder exports to be between 15,000 and 20,000 tonnes this fiscal,” he notes.

Last year, after the ban on exports was lifted, India exported 60,000 tonnes of SMP worth about Rs14 billion. Sodhi expects exports to exceed Rs25 billion this year.

Another major factor boosting the prospects for exports is the sharp decline in the value of the rupee in recent months, making Indian milk powder competitive. New Zealand, one of the largest exporters, has also been facing a problem following scares over contamination of whey powder at one of its major exporting units. Exports to China from New Zealand (which accounts for 90 per cent of its imports) were badly hit following the scare.

But the dairy industry here is worried that an arbitrary clampdown on exports in the future — in case of a spurt in prices or domestic shortage — could hurt India’s image as a reliable supplier of SMP.