Harish Damodaran

New Delhi, Sept. 24 It is the country’s largest organised liquid milk market valued at over Rs 3,000 crore annually. And given that it is surrounded by India’s top three milk producing States — Uttar Pradesh (UP), Rajasthan and Punjab, in that order — one would expect Delhi to offer a win-win situation to both consumers as well as dairy farmers.

But sadly, this is not the case. Since February 2006, the national capital has seen retail prices of toned milk (containing three per cent fat and 8.5 per cent solids-not-fats or SNF) go up from Rs 15 to Rs 21 a litre, with full-cream milk (six per cent fat and nine per cent SNF) rising even more, from Rs 19 to Rs 26 a litre.

The latest Re one a litre hike — effective from last Saturday — comes ahead of the ‘flush’ season from October, when animals (especially buffaloes) normally produce nearly twice the quantity of milk that they do in the ‘lean’ summer-monsoon months.

Thus, just as milk availability is poised to go up, consumers have been subjected to yet another round of price increase, with the lead being taken by Mother Dairy Fruit & Vegetable Private Ltd and others blindly following suit.

Delhi’s estimated 40 lakh litres per day (LLPD) organised liquid milk is dominated by Mother Dairy (23 LLPD) and Gujarat Cooperative Milk Marketing Federation (GCMMF or ‘Amul’, which sells 10 LLPD). Besides these two, there is the public sector Delhi Milk Scheme (three LLPD) and private brands such as ‘Paras’ and ‘Gopaljee’ (1.5-2 LLPD each).

While frequent price hikes have hit consumers, it has not benefited the producers either. Mother Dairy is currently said to be sourcing raw milk delivered to its dock at Rs 21 a litre. This raw milk is, however, of 6.5 per cent fat — higher than the three per cent fat for toned milk sold at the same Rs 21 a litre.

“For every 100 litres of toned milk sold, there is scope to dispose of at least 3.5 kg of surplus fat. At prevailing ghee prices of Rs 185 a kg and deducting processing costs of about Rs 8, the additional realisation from this is Rs 620. The gross realisation from sale of 100 litres of toned milk and 3.5 kg of surplus fat is, then, Rs 2,720 or Rs 27.20 a litre”, industry sources said.

From this, one needs to subtract cost of plastic film (Rs 0.60), processing (Rs one, including energy, labour and other overheads), local transport (Rs 0.30-0.40) and trade margin (Rs 0.60). Thus, the effective margin from processing one litre of raw milk (bought at Rs 21) and selling it as toned milk (for Rs 21) is around Rs 3.6.

“The margin will rise further in the coming months because the raw milk purchase cost will definitely fall, whereas the price to the consumer will not decline,” the sources pointed out. It is this huge margin, they added, that is allowing GCMMF now to transport milk all the way from Gujarat at about Rs two a litre and sell 10 LLPD in a city that has the country’s top three producing States (plus Haryana) as its neighbours.

The absence of a proper network for procuring milk directly from farmers is the reason for the northern States not exploiting their proximity to the country’s biggest market. Cooperative are currently procuring only 1.8 per cent of UP’s milk output, with the ratio being 3.1 per cent in Punjab, 5.6 per cent in Rajasthan and as high as 32 per cent in Gujarat.

“It is a vicious cycle. Dairies don’t pay a good price, so farmers supply less and the deficit is covered through purchases of milk powder. The result is that Delhi consumers are forced to drink milk reconstituted from milk despite being in the midst of the biggest milk-shed”, the sources noted.

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