How did India end up having to import milk?

India, the world's largest milk producer, is amid a supply crisis. This has led to rising prices and imports, which runs the risk of becoming a severe political controversy besides an economic issue.

The Reserve Bank of India's interest-rate setting committee said milk prices are causing high inflation. The available data shows that retail prices rose 15% over the past year. Consumer inflation in milk rose 9.65% in February from a year ago, compared to an increase of 8.79% in the previous month, the most significant buildup after cereals, hitting the budget of Indian households.

Milk is a necessary good, so demand is relatively less price-sensitive. The consumption of milk and dairy products doesn't change much unless prices change a lot or there's a drastic change in the life circumstances of consumers. To control the boil of milk prices, the government of India is mulling over importing dairy ingredients through NDDB.

But why the cow economy is in a difficult phase:

• COVID and Its Impact: The supply chain of the dairy industry was disrupted by covid (and affected before that, to some extent).
• Breeding disruption: We at Jordbrukare estimate COVID-related mobility restrictions also impacted the AI and the breeding program implementation, hurting herd maturation and yield.
• Lumpy Skin Disease: A dip in productivity of milch cattle due to the lumpy skin disease epidemic, which is estimated to have killed and emaciated over 300,000 cattle last year, also hobbled supplies in the world's largest dairy producer, creating a demand-supply mismatch for the first time in several years.
• Flatning Milk Output: Milk output in the country stood at 221 million tonnes in 2021-22, up 6.25% from 208 million, but according to market experts, the country's milk production remained stagnant in 2022-23.
• Robust domestic demand: Demand grew by 8-10% in the same period because of a rebound in post-pandemic demand.
• Unplanned exports: The export of dairy products grew 19.45% to $471 million in April-December 2022 from $395 million in the corresponding months of the previous year. However, within the dairy segment, the export of fat items, such as ghee, saw an unusual jump of about 40% as global demand soared.

Given the price rise, despite any support, India's import of milk products jumped slightly over 1000% to $4.77 billion in 2022-23 even as export of fat items, such as clarified butter (ghee), surged to record levels due to high global prices, stoking the sharpest rise in domestic prices in a decade, data from the government-backed National Dairy Development Board (NDDB) show.

How did India fall short of FAT?

The above analysis was shared by Jordbrukare in Nukkad in December, that unplanned exports would push milk prices in India.

Policy Makers Perspective:

According to government sources, the country has no constraint in milk supply. There is an adequate inventory of skimmed milk powder (SMP). But in the case of dairy products, especially fats, butter, ghee etc., the stocks are lower than the previous year. The government will intervene to import dairy products like butter and ghee, if required, after assessing the stock position of milk in Southern states, where the flushing (peak production) season has started now.

What are the key challenges in front of India?

The challenge faced by Indian Dairy is multifold.

• Since the government considers the milk production data of the cooperative sector rather than the entire private and unorganised sector, it's difficult to assess current product, supply and demand.
• A substantial rise in fodder prices has led to milk inflation. There is a problem in fodder supply as the fodder crop area has remained stagnant in the last four years, while the dairy sector has been growing annually at 6 per cent, he added. India last imported dairy products in 2011.
• Lower global prices make importing a lucrative prospect.

How will imports impact Indian Dairy?

• Respite in price inflation: Consumers will feel a respite in milk prices, this might take time to reach customers, and the relief would be temporary.
• Tumbling farm profitability: Farmers would see tumbling farmgate milk prices and be squeezed between high input costs and falling farm gate milk prices.
• Stock buildup: We at Jordbrukare fear as the country is already entering the flush season, many businesses might end up with costly inventory that would be difficult to dispose of.

How much will we import?

India will try to replenish the disposed of inventory in 2022 hence should allow a minimum import of 5000 to 8000 MMT of Fats and 8000 to 10000 MMT of SMP.

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