Leading dairies in Maharashtra are scheduled to meet next week to address rising input prices and the shortage of essential supplies. Following the meeting, a rise in milk prices could potentially be announced. Approximately 40 to 50 members from Pune, Kolhapur, and Sangli are expected to attend. Currently, these dairies process around 11.8 million litres of milk daily across Maharashtra.
The industry has thus far absorbed these increased costs to avoid passing the burden on to consumers during the festive season, Nikhil Chitale, managing partner of Chitale Dairy, said. This business operates on very thin margins and is highly price-sensitive. If input costs continue to rise at this pace, producers may have no choice but to revise the Maximum Retail Price (MRP) for milk and dairy products, he said.
Balance between dairy farmers and consumers
The industry is striving to maintain a balance between dairy farmers and consumers. While the price paid to dairy farmers was recently increased, consumer prices have risen by 5-6%, while overall input costs have surged by 30%. The ongoing conflict in the Middle East has led to a 15-20% cost increase over the past few weeks and has disrupted the supply chain for milk and dairy products.
Supplies of packaging materials, such as polyethylene for pouches, plastic crates, high-impact polystyrene, and furnace oil, have been disrupted. Currently, the inventory of pouches for packaging milk is down to just one day’s supply, with suppliers urging dairies to restrict their orders to this minimal requirement, Chitale noted.
Daily packaging and sales
Each day, around one crore pouches are packaged and sold across the state. Chitale Dairy typically processes 8,00,000 litres of milk daily and keeps a week’s worth of packaging materials in stock; however, they are now purchasing supplies on a day-to-day basis. There are no alternatives to plastic pouches available in the country, as they are the most economical option.
Additionally, there has been a sharp rise in costs and a shortage of industrial fuels, such as LSHS and furnace oil, for operating boilers in the dairy industry. Furthermore, the increase in diesel prices has significantly impacted transportation costs for milk.
These factors have escalated production costs across the industry, causing smaller plants to struggle to absorb these sudden increases. As a result, some have been forced to slow down or temporarily halt operations, Chitale said.
The dairy industry cannot pause production as many other industries can. Due to the highly perishable nature of milk, operations run 24 hours a day, 365 days a year. Milk must be collected from farmers, transported to processing facilities, processed, packaged, and distributed to markets within a strict time frame.
Rising diesel prices have led to increased transportation costs for both milk procurement and product distribution, exerting even more pressure on already slim profit margins.
Another concern is the potential impact on exports of skimmed milk powder to the Gulf and GCC markets. Trade disruptions are likely to slow down these exports, resulting in a buildup of stock in India. An excess supply in the domestic market could lead to a potential fall in prices and a drop in procurement prices for milk, hurting dairy farmers.
If crude oil and fuel prices remain elevated for an extended period, the situation may become untenable, Chitale warned.