Tuesday, January 16, 2018

Does India really requires 200 MMT of milk ? (53rd DP 1 to 15 Jan, 2018)

Dear friends,

New year has just started and all of you must be on cloud nine with fabulous plans and long list of resolutions at this moment. I wish you all green lights for your plans and  endeavors.

The story of excessive milk production and extremely low milk procurement prices remained at the helm of all dairy related news in last fortnight also. Another news was related to Danone's exit from fresh range of their dairy products with exception of UHT milk also. Though they would continue to grow in high value added Nutritional segment with their Lalru set up.

Since last month I have been thinking about this raw milk price crisis and trying to understand views from multiple stakeholders in media. There are two explicit outcome of this thought process :

a. International prices of SMP ( in particular) during our flush time (winter) and our ability to compete globally is much more important than the local demand of milk during the same time. Even it also affects the SMP stocking capacity of our country for summers.

b. Milk consumer is price elastic appears to be a myth as she continues to purchase milk at the same price as that of summer even though the media is  flashing news of farmers draining their milk on roads as a protest against lower price being paid by the processors.

So I reworked on latest available numbers of milk production :

Milk Production at 163 Billion liters in 2017 with a population of 1.33 billion is around 45 crore liters per day. Considering almost nil quantities as exports,  our per capita availability comes out to be around 335 ml per day which is much above around 250 ml as recommended by WHO. 

Now 48 pc of it is consumed at rural level and 52 pc comes to the market. So we consider that around 80 million dairy farmer's household with say 5 persons per household consumes close to 216 million liters per day so milk demand for around 400 million people or around 30 % population has been met through captive consumption.

Now we are left with around 900 million people with around 234 million litres of milk per day. Now out of these 900 million population around 300 million are below poverty and another 200 million belonging to coastal/North east/tribals etc who might not be an avid milk drinker.

So even if we consider a per capita consumption of 100 ml by this group, we consume another 50 million liters per day. So at the end for 400 million people we are left with 184 million liters of milk per day which is close to half liters of milk per day per person of middle class. 

If these numbers are true then one thing is for sure that taking average demand for milk in so called urban market beyond 500 ml per capita consumption might not be that easy. 

The gap areas however appears in how this milk get processed in our country.

Now out of this balance 184 million liters almost 90-100 million liters comes from the organized sector and balance from unorganized sector. So we are not very sure whether the unorganized sector is actually supplying this much quantity of milk or manipulating something somewhere.

Now the question to be asked is whether India require more production of milk or more conversion of milk from unorganized to organized. 

I have a feeling that our policy makers will have to find a clear answers to the following two questions :

a. How will increasing production of milk in India alone  will help farmers if the demand is not increasing in the same ratio? (If you look at the last few years data , then demand of milk products in quantities is much much below then the value growth in dairy products ).

b. Does the cooperative structure of India ( barring a very few ) strong enough to steer the demand of milk products ? Same is true for private sector also . In most of the cases there has been conversion of unorganized demand in organized and not expansion of mill demand in the country. So pie is not getting increased , it is only that market shares are swapping.

Danone is a recent case which has probably left no stone unturned to make their fresh category of product successful in Indian markets but could not do so.

So I have done enough of number crunching now and its high time for me to leave you with these questions and this edition of Dairy Pulse.

I have received a few confirmation to participate in our proposed Round table at Delhi on How to fix Farm gate milk price for making dairy farming sustainable. We are planning to do it in early weeks of March 2018.

Kindly send one line confirmation if you are interested so that we could plan the logistics and finalize the venue accordingly. Your patronage and participation both matters to us a lot.

Happy e learning

with best regards

Kuldeep Sharma
Chief Thinking Officer
Suruchi Consultants (ISO 9001:2008 Company)
C-49 Sector-65
Noida 201307

Monday, January 1, 2018

Let us re-imagine Farm gate prices in New Year 2018 (52nd DP 16 to 31 Dec, 2017)

Dear Friends,

A very happy new year to all of you. Since last one month there have been a lot of farmer's agitation across the country against the  lower prices being offered to them in this time of flush. Every one is talking about on how to subsidize them or strategies to resolve their problem.

At the outset , I would like to share 3 ways of re-imagining this situation and finding some out of the box solutions.

a. Bring back the milk shed concept which got dissolved way back in 1992 when dairy industry got delicensed. This way the actual owners of the allocated milk shed will be responsible for the betterment of the farmers by offering them best price and also take care of differential milk quantities being produced by them during flush and lean. Such milk shed would define the ownership of milkshed and a set of large players from cooperative and private would be taking care of farmer's needs.

b. To fix a quantity of milk (to which higher prices will be paid) with an empirical multiplier based on the average milk being given by the farmer during the lean period e.g if a  farmer has given average of 5 liters of milk per day in a specific week /fortnight or month during the lean period then during flush he would be getting a good or appropriate price for upto 1.5 to 1.6 times that of 5 liters i.e from 7.5 to 8  liters per day . Any quantity above could be bought by the private or cooperative at a rate which could be decided on the basis of demand -supply prevailing at that time. This way the farmer would be insured against any price fluctutaions for the equivalent of the milk being sold by him to the cooperative during lean  period .

c. We have researched the  IFCN data of over 50 countries ( IFCN.org) and found that  a liter of milk  must at least fetch a farmer enough to buy 1.5 Kgs of cattle feed/ balanced ration to be sustainable. It has been proven that if the farmer could buy 1.5 Kg of compound feed or cattle feed of best quality at a price of 1 Kg of  cow milk then he would not be in loss. It means if the cattle feed price is Rs 25 per kg for the best quality feed then a farmer must get not less than 1.5 times i.e Rs 37.50 per liter of milk so that a liter of milk fetches him 1.5 kgs of this feed. If he is getting the feed at Rs 20 then milk price should not be less than Rs 30.

For buffalo milk most of the times a farmer gets a better price because the pricing is based on fat and he gets a higher price even in worst scenarios.

Now I leave it to all the policy makers and stakeholders to consider any of these three or a combination of these three ways. You all are also open to think more solutions towards making dairy farming sustainable. However subsidizing farmers directly as done by few states is not a sustainable solution and must be discouraged.

I also propose to have a round table on this subject with like minded stakeholders some time in LAte Feb or early  2018. Interested  members could contact us back with a one line acceptance and then we will fix the venue.

I once again wish all of our readers a very happy new year ahead full of purpose and accomplishments.

Happy e reading

with best regards

Kuldeep Sharma
Chief Thinking Officer
Suruchi Consultants (ISO 9001:2008 Company)
C-49 Sector-65
Noida 201307