Animal Husbandry, Dairy & Fisheries Sector – Pashudhan Sanjivani, E- Pashudhan Haat, etc

Mystery of milk price going up when WPI inflation is down

Note4Students

From UPSC perspective, the following things are important :

Prelims level : NA

Mains level : Milk inflation

Milk prices are rising, as producers and marketers pass on higher costs to consumers.  Amul and Mother Dairy raised milk prices by ₹2 each this week, the second such hike this year.

Why are milk prices going up?

  • High operating cost: For dairy companies and cooperatives, the cost of operation and production of milk has increased.
  • Fodder price hike: Prices of cattle feed, which includes maize, wheat and soybean, are up 20% over the year.
  • High procurement cost: Given the rise in input costs, its member unions from where it procures milk have increased farmers’ price in the range of 8-9% year-on-year.
  • Cost sharing: In an already inflationary environment, dairies are compelled to pass on price increases to consumers as procurement prices go up.

Has demand for milk picked up as well?

  • A better rate of vaccination, resumption of offices, schools and even opening up of channels such as hotels and restaurants have led to higher out-of-home consumption of foods and beverages in the last two to three quarters.
  • This has led to greater demand for milk and other dairy beverages.
  • Analysts cited higher skimmed milk prices in the international markets that they said make exports of the commodity out of India more attractive.
  • A combination of these factors is pushing up milk procurement prices, and leading to higher retail prices.

But isn’t wholesale inflation cooling down nowadays?

  • Yes; India’s wholesale price-based inflation eased to 13.93% in July.
  • In fact, WPI inflation in milk eased in July to 5.45% compared  to  6.35%  in  June,  though it remained high compared to February.
  • However, companies also pass on hikes with a lag to lessen the impact on demand. Amul says the increase is less than 4% — below the food inflation rate of 8-9%.

When will milk prices cool down?

  • Milk procurement is also dependent on the flush season that runs between September to February.
  • This is the peak lactating period for cattle due to better availability of green fodder and water.
  • As a result, the period in general sees higher milk production and availability.
  • The onset of  the  flush  season  could offer some relief to dairy companies in the second half of the current fiscal year.

What does this mean for consumers?

  • For households, an  increase  in milk prices obviously means shelling out more money; this in a country that is among largest consumers of milk.
  • In fact,  by July,  dairy companies had raised milk selling prices by 5-8% in a six-month window.
  • Consumer demand typically sees an impact in the first few days after price hikes are initiated. However, recovery happens gradually.
  • Consequently, higher milk procurement prices could also hurt companies that make bakery products or food items that use milk or milk solids.

Also read

Concept of Inflation/Deflation/WPI/CPI/IIP

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