Covid has soured the dairy business and is being held responsible by the farmers who are opting to dump their milk on roads and halting milk supplies to the cities.
Milk prices are in news once again. Dairy farmers in Maharashtra region have again started a series of protests against the low prices dairies are paying them currently.
By the end of April 2020, dairies in Maharashtra had started reducing procurement prices they pay to farmers for their milk. In May, dairies in Tamil Nadu had effected a similar cut in procurement prices with the Karnataka dairy unions also announcing a revised price by Rs. 2 per liter. In case of Maharashtra, farmers who were paid at the rate of Rs. 30 per liter for their milk with 3.5 per cent fat and 8.5 per cent SNF (solid-not-fat) saw a steady decline in their realizations with dairies now paying between Rs. 17-22.50 per liter. This vertical decrease in their prices has led to the present protest with multiple farmer organizations taking to the streets.
Dairies claim that the lockdown has severely affected their capacity to pay the farmers and other expenditure. During the initial days of lockdown, dairies saw products like ghee, cheese, butter, ultra heat treated milk (sold in cartons) fly off the shelves as people stock-piled the essential commodities. However, the closure of key commercial buyers like hotels, cafes and restaurants, ice cream manufacturers, sweet, confectionery and mithai shops etc… saw dairies reporting sharp dip in their milk sales. Excess milk is converted by dairies into skimmed milk powder (SMP) which they either trade on commodities platforms or reconvert into liquid milk when their collection goes down. Estimates by the dairy industry has pegged that at present the country has around 2 lakh tons of SMP which is further hitting their bottom lines.
With total and partial lockdowns, social distancing norms, have distant the occasion of marriages and other socio-religio gatherings. Festivals normally bring dairies into brisk business as sales of milk, ghee, curds, sweets etc…to peak during this time, but the corona hangs over both the upcoming Eid, Raksha Bandhan and Ganesh Chaturthi later in August. Before the lockdown, SMP in domestic market was around Rs. 270-300 per kg but since then prices have collapsed to the present Rs. 160-170 per kg which has seen dairies having no other option but to incur storage cost on it.
Other businesses such as small mithai shops, Street chaiwallahs, shutting down of industrial canteens has led to a further decrease in milk demand. A combination of both lower sales and unsold commodities have led to the present crisis with dairies not ruling out further price correction in the days to come.
In the present scenario, farmers are demanding a direct subsidy ranging from Rs. 5-10 per liter which will ensure their realization is between Rs. 25-30 per liter. This will compensate their cost of production which is around Rs. 22-23 per liter not taking in consideration labour charges. The government of Karnataka has a scheme which sees the government paying a subsidy of Rs. 6 per liter directly into the account of farmers helping them during crisis.
Farmers in Maharashtra are also demand the similar introduction of the scheme that has been adopted by Govt of Karnataka. Dairies have asked for an export subsidy which will enable them to offload their unsold stock of SMP and thus enable them to create more demand in international market and hence pay farmers a better price without any hardship.