While dairy players in India have hiked milk prices twice in the last year, the same is not likely to repeat in the coming months due to reasons including abundant water supplies and increased crop production.
While dairy players in India have hiked milk prices twice in the last year, the same is not likely to repeat in the coming months due to reasons including abundant water supplies and increased crop production. “In fiscal 2021, milk production is expected to pick up, given abundant water in reservoirs and expectations of a normal monsoon. That should arrest any further rise in milk procurement and retail prices,” a CRISIL research report said on Thursday. RS Sodhi, managing director, Amul, had also earlier said that the company does not expect milk prices to rise any soon.
The dairy industry raised milk prices twice last year 2019, making the daily essential commodity costlier by Rs 4 per litre. However, these were the only two hikes in milk prices in the last three years. “This is less than 3% which is below both food inflation and retail inflation,” RS Sodhi had earlier told Financial Express Online in January. There were several factors behind these hikes. The procurement prices of milk skyrocketed between April and December 2019 due to shortfall in production across India, the CRISIL report said.
Further, floods had hit various parts of the country and this led to poor animal health. “Also, water logging in green pastures kept animals from grazing and damage to crops such as maize and sugarcane, which are used for fodder, crimped fodder availability,” the report added. The overall result was milk shortage and then price hike.
What changed in FY21?
Other than increase in water supply due to enhanced reservoir levels, rabi sowing area has increased by 10% as of January 31, 2020. What this essentially means is that the cattle will have better availability of fodder. “Higher arrivals of key crops such as wheat, bajra, jowar and maize from March would mean copious fodder availability, which should raise milk production next fiscal,” CRISIL said. The same will stabilise milk procurement prices, which then reflects into end consumer price.
Even then, there is a risk factor of monsoons. If monsoons aren’t satisfactory in 2020, it can again impact milk production and availability.