Freight to fodder: What’s ‘fuelling’ milk price rise?

Marred by inflation, dairy companies and cooperatives have increased milk prices, much to the woes of the end-consumer. The Gujarat Cooperative Milk Marketing Federation (GCMMF), which markets Amul, revised milk price by Rs 2 per litre, in Ahmedabad and Saurashtra in Gujarat and Delhi NCR, with effect from July 21. Others such as Mother Dairy and Gokul, too, have hiked prices.

Mother Dairy has also raised prices by Rs 2 per litre, while Kolhapur District Co-Operative Milk Producers' Union, which owns the Gokul brand, announced a hike in procurement price by Rs 2 for buffalo milk and Re 1 for cow milk from July 11.

Following the price hike, now, in Ahmedabad, the price of Amul Gold will be Rs 29 per 500 ml, Amul Taaza will be Rs 23 per 500 ml, and Amul Shakti will be at Rs 26 per 500 ml. Mother Dairy’s full 1,000 ml cream milk will be available at Rs 57, instead of Rs 55.

Dairy is a product of daily consumption in most Indian households and impacts the consumers who are already struggling with price rise across consumer product segments. A household that buys 1 litre of milk daily, for instance, will now have to shell out Rs 60 more monthly and Rs 1,440 yearly.

Fuel to fodder

The supply of milk has not suffered, but the cost of procurement, packaging, and freight has gone up, leading to this price hike. The dairy industry cites multiple reasons -- from the rise in procurement to transportation -- for hiking prices.

“The company has been experiencing inflationary pressure on overall input costs which have increased multifold in the last one year, accompanied by the distress in milk production due to the ongoing pandemic. In the last one year, farm prices have increased 8-10 percent, coupled with mounting operational costs of processing, packaging, logistics, etc.,” Mother Dairy noted in a press release.

Farm prices include the cost of fodder or animal feed, which has risen by 10-20 percent in the last one year, according to industry estimates on account of costlier raw materials.

The price of soya DOC, a raw material used in animal fodder today stands at Rs 75 per kg, as opposed to Rs 40-45 a year ago, according to animal feed manufacturers. Traditional feed such as cotton seed oil cake has seen a substantial price rise of 40 percent. Apart from this, the cost of transportation of raw materials as well as finished products (animal feed) has gone up due to diesel price hike, according to manufacturers.

Diesel is currently retailing at Rs 90-100 in several cities, as opposed to Rs 60-70 last year in June.

Hence, farmers are spending more to feed their cattle, which has raised the cost of milk procurement for dairy cooperatives and companies.

On top of this, the dairy industry is also struggling with increased transportation costs. According to an executive at a dairy company, the freight cost has increased by 50 percent.

Hence, to deal with price rise on multiple fronts, the dairy industry had to resort to price hike.

More hikes ahead?

The likelihood of a further hike, at least this year, is thin, say experts and dairy majors. “Going forward, milk prices are not expected to see any further increase as it is usually revised once a year and it does not necessarily happen every year,” said Natasha Trikha, Research Analyst, Care Ratings.

The current revision in prices of milk comes after a year and a half; before this, the dairy cooperatives had increased prices in December 2019.

Anuj Sethi, Senior Director, CRISIL Ratings, also chimed in. “We don’t expect further increase in retail milk prices this fiscal, beyond what has been done already,” he added.

However, value-added products such as cheese, butter, and Indian sweets, which use milk as raw material might see a price increase, going ahead.

Pankaj Agarwal, Chief Operating Officer at Bikano, said: "The rising cost of raw materials will inflate the cost of production, which is not good for business. At the moment, we are planning to absorb the increased cost."