Explained: Why has Amul raised the price of milk? Will prices rise even more?

Many of you would have realised you paid Rs 2 more for your litre of milk this Wednesday morning. This is because on Tuesday (August 16), Gujarat Cooperative Milk Marketing Federation (GCMMF), the dairy giant that markets milk and milk products under the brand name ‘Amul’, decided to raise retail milk prices.

Dairy companies across the country have signalled that they would follow Amul’s example and hike their prices soon. Mother Dairy has already raised the price of milk in Delhi-NCR by the same quantum as Amul. Why has milk become more expensive?

By how much, and why, has Amul increased retail prices of milk?

Amul’s official press statement on Tuesday said they have decided to increase the retail price of fresh milk across the country by Rs 2/ litre, and the hike would be effective from August 17.

Double toned milk, marketed as Amul Taaza, now costs Rs 44-46/ litre as against the earlier rate of Rs 42-44/ litre. Amul Gold, the full cream milk, is selling at Rs 62/ litre, as against the earlier Rs 60/ litre.

Amul said in the release that the price rise effected in the MRP is 4 per cent — which is lower than the prevailing rate of inflation. “This price hike is being done due to increase in overall cost of operation and production of milk. The cattle feeding cost alone has increased to approximate 20% compare to last year. Considering the rise in input costs, our member unions have also increased farmers’ price in the range of 8-9% over previous year,” the release said.

What is the procurement price of milk currently?

At present, the procurement price of milk with 3.5 per cent fat and 8.5 per cent SNF (solid-not-fat) is around Rs 33-36/ litre. Thus, Indapur Dairy and Dairy Products Ltd, the Pune-based private dairy that retails milk under the brand ‘Sonai’, raised the price it paid to farmers from Rs 32 to Rs 33/ litre on August 5.

Dasarath Mane, chairman and managing director of this dairy, blamed the paucity in milk collection for the price rise. “Our dairy is now reporting collection of 20 lakh litres of milk per day. Last August, the collection was around 23 lakh litres per day. This shortfall is the main reason why we have raised our prices,” Mane said.

He said dairies across the country are reporting a shortfall of 8-10 per cent in milk collection. This decrease has come even though the rainy season is in full swing, which should ideally allow for easy and abundant availability of green fodder. But things have not quite turned out that way, Mane said.

“The continuous and heavy rain in most parts of the country has resulted in lower yields of green fodder. Protein and mineral mixtures have also seen a price rise, which has increased the cost of cattle feed,” he said. The overall effect of these price rise has resulted in lower milk yields and collection at the dairies.

Also, given the continuous rain, some major milk-producing states like Gujarat have seen an increase in the number of diseases in cattle. Lumpy skin disease in Gujarat has emerged as a major problem, which Mane said has affected the milk collection in the state. “The supply-demand mismatch has resulted in dairies raising their retail prices,” he said.

Rajiv Mitra, CEO of the French dairy giant Lactalis Prabhat, said there was a 10 per cent fall in their daily milk collection in Maharashtra. At present, the dairy is collecting 10 lakh litres of milk per day. Like other dairy players, Mitra too mentioned the cost of cattle feed and other costs.

“Cost of production of milk has gone up compared to the previous year. Cattle feed cost alone has gone up by over 25 per cent. Also, cost of operations has gone up. There is a rise in transport, logistics, manpower, and energy costs. Because of the rise in input costs, milk procurement rates have increased by 15-25% over the same time last year,” he said.

How is the retail demand for milk and milk products?

Two years after the Covid-19 lockdown led to a massive demand destruction, the dairy industry has reported complete recovery. The demand from the Hotel, Restaurant, and Catering (HORECA) business has surpassed last year’s demand.

Dairy owners in Maharashtra have pointed out that this year, the demand is of liquid milk rather than Skimmed Milk Powder (SMP) and white butter (which constitute the commodity sector of the dairy industry). “This might be the first time in recent history that Maharashtra’s procurement price is higher than Tamil Nadu’s which is mostly a liquid milk market,” said a private dairy owner from Maharashtra.

Globally, SMP prices have corrected continuously since April. August contracts as recorded by Globaldairytrade, the online auction platform of New Zealand’s dairy giant Fonterra, were at $3,524/ tonne, which is a steep fall from the all-time high of $ 4,599/ tonne recorded on April 5 this year. The domestic price of SMP is now at Rs 280/ kg, while that of white butter is Rs 390/ kg. Most dairies in the country are short on their supply of SMP and white butter.

Where are milk prices headed from here?

Most dairies have talked about further increases in milk prices before the flush season commences in October. In the dairy industry, flush season corresponds to the time when animals naturally lactate more, thanks to the easy availability of green fodder and water. “Till the flush starts, we can see price bumps in the retail and procurement markets,” said a private dairy owner from Maharashtra.