Monday, February 22, 2016

Woes of milk farmers in India-Will the white revolution end up as "red" revolution?

Considering that milk from cow and buffalo provides a major source of vitally needed nutrients like high quality proteins, healthy fats, vitamins and minerals, any adverse factors affecting the dairy industry will definitely impinge on the health of the population, especially in a country like India where substantial percentage of people are vegetarians by nature or by compulsions. Though India prides itself as the number one milk producer in the world, recent international developments are bound to tell upon the fortunes of the dairy sector especially the  dairy farmers. It is ironic that India's white revolution built on cheap imports of milk powder from Western countries is facing an acute crisis by the very fact that the country is producing surplus milk products with uneconomical export prices which collapsed by almost 60%! What are its consequences? Here is a take on this extraordinary situation. 

"ince April-May 2014,milk realisations for farmers have collapsed by around Rs 10 per litre. Maharashtra farmers are currently selling cow milk, with 3.5 per cent fat and 8.5 per cent SNF (solids-not-fat) content, to private dairies at roughly Rs 16 per litre, compared to Rs 26 one-and-a-half years ago. During the same period, farm-gate prices in northern India for buffalo milk, containing 6.5 per cent fat and 8.5 per cent SNF, have dropped from Rs 39-40 to Rs 29-30 a litre. The blame for this can be laid primarily on "global" factors. Prices of skimmed milk powder (SMP) at GlobalDairyTrade — the fortnightly online auction platform of New Zealand's Fonterra Cooperative, the world's No. 1 exporter — averaged $ 1,792 per tonne on Tuesday. The corresponding rate on April 1, 2014 ruled at $ 4,126 per tonne, which itself was below the record $ 5,142 for the same period the previous year. The above unprecedented global crash has done three things to India's dairy industry. First, it has brought exports to a standstill, with SMP shipments from the country plunging from a peak of 1.3 lakh tonnes in 2013-14 (valued at Rs 2,717.56 crore) to 34,490 tonnes (Rs 681.69 crore) in 2014-15 and a paltry 8,130 tonnes (Rs 155.73 crore) during April-November 2015. Second, low export demand has impacted domestic SMP prices too. These have declined from an average ex-factory level of Rs 240-250 per kg in April-May 2014 to Rs 140-150 now, even as fat (ghee) prices have remained stable at Rs 300-310 per kg. Lower powder realisations have affected the operations of private dairies — especially those in the North and Maharashtra whose revenues are mainly from commodities, as opposed to branded liquid milk sales. When SMP and ghee were selling at Rs 250 and Rs 300 per kg respectively, a dairy would have grossed Rs 3,270 or so from processing 100 litres (103 kg) of cow milk with 3.5 per cent fat and 8.5 per cent SNF. After deducting Rs 300-350 of processing and packaging costs, they could pay up to Rs 2,950 for milk delivered at the plant. This price, at the farm-gate, would have worked out to about Rs 2,600 or Rs 26 a litre. But at Rs 140/kg for SMP and Rs 300/kg for ghee, the gross revenue from the same 100 litres of milk would be just over Rs 2,300. Netting out Rs 350 of processing-cum-packaging costs and an equal expense for transport of milk from the farm, thus, effectively leaves Rs 16 per litre — which is what Maharashtra's farmers are receiving today. Simply put, most private dairies with a predominantly commodity (powder and ghee) portfolio have responded to the global crash either by sharply slashing their milk purchase price or even discontinuing operations in the last one year.But the sharp cut-back in procurement by private dairies has resulted in a third outcome — diversion of the surplus milk to cooperatives, particularly in the western and southern states where they have a reasonable presence".  

It is unfortunate that milk producers are being put into lot of economic hardships because of the fall in procurement prices by the private dairy plants who are finding it hard to balance their balance sheets with such a low export price realization for the milk powder. The cooperative milk producers union set up in each state under the operation flood program however are still continuing to give the state decided procurement prices though the capacity of their plants are limited with many farmers compelled to go to private companies. In states like Karnataka the state government announced a bonus of Rs 4 per liter for those bringing in milk to the cooperative dairies, disbursement of this amount is irregular and uncertain. On the whole India dairy sector is going through tremendous strain and whether the country will lose the advantage of white revolution making the milk farmers some what well to do compared to traditional farmers cultivating the land. Governments at the center and states must take this as a serious crisis and come out with proactive policies to prevent large scale abandoning of dairying by the rural farmers leading to a huge potential distaster in the coming days.

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