As demand overtakes supply, a big fat problem

Why in the News

India now faces a shortage of milk fat, not of milk. Demand for genuine ghee, khoya and paneer has risen, but milk increasingly comes from cows, whose milk carries less fat than buffalo milk. Butter prices at the dairy rose over 54% in three years, against 18% for skimmed milk powder (SMP).

What is the milk fat problem?

1. What it is: Milk is water plus two kinds of solids: fat, which makes ghee and butter, and solids not fat (SNF), the proteins, milk sugar and minerals left after the fat is removed.
2. Joint products: Fat and SNF come together in every litre, like oil and oilcake from an oilseed. Producing more of one always brings more of the other.
3. Milk supply is adequate: Total milk production has grown about 3% a year over the past decade. The shortage is in fat alone.
4. Production success and fat gap: Policymakers made India the world’s top milk producer, but output of fat has not kept up with what consumers now want.
5. The takeaway: A country can produce enough milk and still run short of fat if the mix of animals shifts.

Why has demand for milk fat risen?

1. Adulterated ghee: Some suppliers laced desi ghee with palm and other vegetable oils, or with animal fats such as tallow and lard.
2. Regulatory crackdown: Crackdowns by the Food Safety and Standards Authority of India (FSSAI) and other regulators weakened these suppliers. Enforcement tightened most after the Tirupati laddu scandal of September 2024.
3. Shift to genuine products: The crackdown raised demand for genuine ghee, khoya, paneer and other high fat dairy ingredients.
4. GST cut: The Goods and Services Tax (GST) on ghee, butter and cheese has been cut from 12% to 5%.
5. Incomes and awareness: Rising incomes and awareness of “real” milk fat have moved consumers away from frozen desserts made with vegetable oil and from analogue paneer (a paneer lookalike made with vegetable fat).

Why is the supply of fat not keeping pace?

1. Shift from buffaloes to cows: Growth in milk output is coming increasingly from cows. Buffaloes now contribute hardly 45% of national milk output, against 60% three decades ago.
2. Lower fat in cow milk: Standard cow milk has 3.5% fat and buffalo milk 6.5%, so the same volume of milk now yields less fat.
3. SMP surplus: Meeting fat demand through cow milk also produces more SNF, which is dried into SMP. The domestic SMP market is not expanding at the same rate.
4. Resulting imbalance: India can end up with surplus SMP and a deficit in fat at the same time, which the gap between butter and SMP prices already shows.

Challenges

1. Farmer preference for cows: Crossbred cows give more litres per day than buffaloes, so farmers paid on volume choose them.
2. Slow herd change: Buffaloes mature later and calve less often, so their numbers cannot be raised quickly.
3. Unsold SMP stocks: Dairies holding surplus powder depend on volatile export prices to clear it.
4. Stronger incentive to adulterate: Costlier fat raises the profit from mixing cheap vegetable oil into ghee.

Way Forward

1. Payment for fat: Dairies should pay farmers on fat and SNF content, not on volume, to reward milk richer in fat.
2. Buffalo breeding: The Department of Animal Husbandry and Dairying should expand artificial insemination and breed improvement for high yielding buffaloes.
3. Outlets for SMP: Dairies and the government should develop export and domestic uses for surplus powder.
4. Sustained testing: FSSAI and State food regulators should keep up surveillance of ghee, khoya and paneer.

Conclusion

India’s dairy success was built on producing more milk, and its next test is producing the right mix of milk solids. Whether breeding and milk pricing begin to reward fat is the change to watch.

Key numbers

1. SNF content: 8.5% in standard cow milk and 9% in buffalo milk.
2. Month of the GST cuts on dairy: September 2025, for ghee, butter, cheese, ice cream and paneer.
3. GST on ice cream: Cut from 18% to 5%.
4. GST on paneer: Cut from 5% to zero.
5. Period of the price rise: October 2023 to October 2026, for both butter and SMP.

Matching Previous Year Question

“[2018] Consider the following statements: 1. The Food Safety and Standards Act, 2006 replaced the Prevention of Food Adulteration Act, 1954. 2. The Food Safety and Standard Authority of India (FSSAI) is under the charge of Director General of Health Services in the Union Ministry of Health and Family Welfare. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 ANSWER: (a)”