New Delhi: Your morning glass of milk is getting costlier.
Last week, Amul, India’s biggest milk cooperative, increased prices by Rs 3 per litre, taking the price of standard toned milk up to Rs 54/litre.
In December, another leading dairy producer, Mother Dairy, had increased milk prices by Rs 2 per litre, raising the cost to Rs 53 per litre.
According to data released daily by the Department of Consumer Affairs, a litre of milk cost Rs 56 on average, as of Tuesday, 7 February. The price of milk on the same date last year was Rs 50.18 per litre. Average price is based on the average of all areas (340 market centres) that the price monitoring division reviews.
The past few months of price hikes have ensured that inflation in the milk and milk products category in India has been higher than that in the general products category since October 2022.
Experts believe the hikes were caused by the interplay of demand and supply factors, brought on by the lingering effects of the Covid-19 pandemic, as well as the ongoing shortage and rise in prices of fodder for milk-producing animals.
Price movement
The pandemic disrupted the demand for milk, especially from the commercial sector, according to R.S. Sodhi, president of the Indian Dairy Association and former managing director, Amul.
“During the pandemic, the demand for milk took a big hit,” Sodhi explained. “Big events (mass gatherings) like marriages and other functions were not allowed (owing to the pandemic lockdown or restrictions) and restaurants were also closed for a considerable period. This in turn, reduced the demand for milk in these industries. Consequently, the prices did not rise during the Covid months and farmers suffered losses.”
He added: “Now the milk demand is showing resilience, which is adding pressure on the extant supply, hence the hike in prices.”
This “demand and supply tightening” is likely to continue till Diwali, Sodhi further said.
According to the department of consumer affairs’ price monitoring division, milk prices were relatively stable in 2020, when India took drastic steps to contain the pandemic. On average, milk prices rose by only Rs 1.72 that year.
In the previous year, 2019, before the beginning of the Covid pandemic, milk prices had on average gone up by Rs 2.22 per litre.
In 2021, though the country remained in the grip of the pandemic, some government-imposed restrictions were relaxed as people started getting vaccinated. During this time, milk prices went up by Rs 3 per litre, on average. The increase was an average Rs 5 per litre in 2022.
An analysis of inflation data by ThePrint shows that the spike in milk prices post-October 2020 has meant that inflation in the ‘milk and milk products’ category of the Consumer Price Index (CPI) has been higher than the overall inflation rate in the country.
This goes against the previously observed trend of inflation in milk prices being lower than average inflation for all products.
Inflation in milk prices, as monitored by the Ministry of Statistics and Programme Implementation’s monthly CPI data, was below the general CPI inflation for both rural and urban areas taken together, between July 2020 and September 2022.
Between November 2017 and February 2020, the inflation rate of milk products was below the general CPI rate by an average of 1-2 percentage points. It became slightly higher than general CPI (1.5 percentage points) during the Covid lockdown period, between March 2020 and June 2020. After that, till September 2022, the inflation rate of milk and milk products has been lower than the general CPI inflation rates.
In the past three months, however, the milk inflation rate has been at least 2 percentage points above the general inflation rate in the country.
Fodder price drive milk inflation
One of the reasons for the hike in milk prices, according to Sodhi, is that farmers who were facing losses — owing to supply outnumbering demand in the initial pandemic period — did not invest in their cows, which led to reduced supply when the demand picked up again.
“The dairy farmers faced huge losses, which limited their capacity to expand milk supplies,” said Sodhi. “Cost of production is also a key determinant in milk supply, 75 per cent of which is fodder/cattle feed.”
According to the Wholesale Price Index (WPI) released by the Ministry of Commerce and Industry every month, since October 2020, fodder price inflation has been above 10 per cent (with a slight cooldown between October 2021 and January 2022, when it dropped to an average of 5 per cent).
Fodder prices skyrocketed in 2022, facing an inflation rate of more than 20 per cent since May last year. In December 2022, it reached its highest point (since January 2014) at 28.7 per cent.
The WPI inflation measures the change in prices of commodities before they reach the end consumer.
“There is a demand and supply tightening in the milk economy,” Sodhi said. “Demand has risen faster than the supply and we also have to account for the rising input costs. From the consumer point of view, you may call it inflation, but from the producer’s side, it is their income and they shouldn’t be facing an uncomfortable situation either.”
He added: “This tightening is likely to remain till Diwali this year. We are expecting the supply augmentation by then. The prices shall stabilise.”
(Edited by Poulomi Banerjee)