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

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