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Dairy in Doldrums: Turning milk crisis into an international ‘gift’ opportunity

Every year of not exporting one litre of SMP has meant accumulation of stocks with dairies, forcing them, in turn, to slash both milk procurement and prices paid to farmers.

Dairy in Doldrums: Turning milk crisis into an international ‘gift’ opportunity A woman dairy farmer pours milk at a village society with a bulk cooler in Gujarat’s Surendranagar district. (Express photo by Javed Raja)

By B M Vyas & Manu Kaushik

Early this month, the media was awash with images of farmers throwing vegetables and pouring milk on the roads. While the acts may have attracted fair criticism, the primary motivation behind them — falling producer realisations — is deserving of deeper analysis. We shall focus specifically on milk.

The White Revolution in India happened thanks to a fundamental technological innovation in 1956. That was when Amul, for the first time in the world, manufactured powder from buffalo milk. The breakthrough enabled the dairy cooperative in Gujarat’s Kaira district to accept all the milk that its farmer-members poured, especially during the ‘flush’ winter months when production by buffaloes rose one-and-a-half times or more. The surplus milk converted into powder could now be stored and re-constituted during the ‘lean’ summer, when production dropped. The powder plant guaranteed that all the milk poured by farmers got procured, making dairying a sustainable income-generating activity. And as consumers, too, were assured of round-the-year supply, prices stabilised at both ends.

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Technological and processing innovations such as the above, along with organised procurement and marketing of milk, gave an impetus to India’s dairy industry. Milk production rose from 20 million tonnes (mt) in 1960-61 to 53.9 mt by 1990-91. It has grown even more after liberalisation, reaching 165.4 mt in 2016-17. Milk is today the country’s biggest agricultural ‘crop’, with its output value in 2014-15 even exceeding that of all cereals and pulses put together.

But success has also brought its own set of problems.

Festive offer

The last 3-4 years have seen India reel under a skimmed milk powder (SMP) glut. SMP rates, which were at Rs 240-250 per kg until four years ago, have since been mostly hovering around Rs 140-150. The reasons aren’t difficult to see. In 2013-14, the country exported 1.30 lakh tonnes (lt) of SMP, which, in the subsequent four years, fell to 34,490 tonnes, 15,930 tonnes, 16,100 tonnes and 11,476 tonnes. With annual powder production at 5.5 lt-6 lt, and domestic consumption at 4.5 lt-5 lt, there is, thus, a surplus of one lt that is no longer going out. In the pre-powder days, the problem was of a seasonal surplus of milk with farmers; now, it is of a structural surplus of powder itself with the dairies.

The collapse of exports has to do with global prices. After peaking at $ 5,000-$ 5,200 per tonne in April 2013, international SMP prices have fallen to $ 1,800-$ 2,000 levels, having gone even as low as $ 1,400-$ 1,500 in August 2015. The current $ 2,000 per tonne global price roughly corresponds to the Rs 136/kg or so levels being realised by dairies here.

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Three factors have primarily contributed to the global crash: (1) A bursting of the Chinese import bubble in 2013, after whey protein concentrate consignments from the New Zealand dairy giant Fonterra tested positive for Clostridium botulinum bacteria; (2) the Russian embargo on western food imports as a retaliation to sanctions that followed tensions in Ukraine in 2014; and (3) the European Union dismantling a three-decade-old milk production quota regime in 2015.

These developments have saddled the world’s markets with a massive surplus of dairy commodities. It has even led to the distress sale of Murray Goulburn, a 68-year-old farmers’ cooperative and Australia’s biggest dairy, to Saputo of Canada in early May this year. The effects are being felt in India as well. Every year of not exporting one lt of SMP has meant accumulation of stocks with dairies, forcing them, in turn, to slash both milk procurement and prices paid to farmers.

The last flush season saw some district unions of the Gujarat Cooperative Milk Marketing Federation (GCMMF) collecting milk only once, as opposed to twice, a day. Effectively, the procurement price of buffalo milk in Gujarat has come down from around Rs 41 per litre to Rs 35 per litre in the last one year. Private dairies in Maharashtra have, likewise, lowered cow milk rates from Rs 26-27 to Rs 17-18 per litre. Dairies are, at present, holding SMP stocks of over 2 lt. One shudders to think of the situation after October, when the next flush season starts. The very innovation that triggered the White Revolution — milk powder production — is ironically threatening to burn the barn down.

One solution to the crisis — as many in the industry are demanding — is a subsidy of up to 20 per cent on SMP exports. Its effectiveness is questionable, particularly if global prices were to come under further pressure. Besides, should Indian taxpayer money be used to subsidise undeserving consumers in other countries? Every crisis provides an opportunity; today’s situation calls for a more creative and strategic intervention.

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The Operation Flood programme, one must remember, was financed mainly through 312,000 tonnes of SMP and 168,000 tonnes of butter oil received from the European Economic Community and the United Nations’ World Food Programme during 1970-85. The monies raised by recombining these “gifted commodities” as liquid milk and selling at the prevailing domestic market prices is what created a countrywide modern dairy processing and marketing infrastructure. What stops India from carrying forward the legacy of Operation Flood to Nepal, Sri Lanka, Bhutan, Bangladesh, or even African and Central Asian countries? The government can easily procure 1 lt of SMP stocks from our dairies at, say, Rs 200 per kg, and “gift” these to low-income, milk-deficit nations, thereby spreading goodwill and cementing India’s international relations. This job can be entrusted to the National Dairy Development Board, which can also provide the technical assistance to establish dairy plants and procurement infrastructure in these countries.

A programme on the above lines will cost Rs 2,000 crore-2,500 crore annually, which is a pittance compared to the Centre’s budgeted food subsidy of Rs 169,323 crore for 2018-19. This subsidy is mostly for rice and wheat, whose production value is much less than that of milk. The multiplier effects of an India-funded Operation Flood programme will also be far more. By providing an external market for our surplus powder, it will help arrest the current slide in prices and incomes of dairy farmers here.

We should learn from Murray Goulburn. The cooperative giant’s end was brought about by its inability to pay farmers remunerative prices, which resulted in its average milk procurement falling from almost 100 lakh litres to 52 lakh litres per day between 2014-15 and 2017-18. Even the mightiest can crumble if dairy commodity markets continue to be what they are today.

First uploaded on: 21-06-2018 at 01:26 IST
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