Less than 30 percent of the milk in India comes from the organised sector. The rest is through the unorganized sector.
In her Budget speech, Finance Minister Nirmala Sitharaman proposed to “facilitate doubling of milk processing capacity from 53.5 million MT to 108 million MT by 2025.”
Prima facie, the arithmetic of the milk industry makes that a tall order. At least achieving the goal within the stated deadline seems so. Milk production for 2018-19 stood at 187.7 million tonnes, according to data by the Department of Animal Husbandry, Dairying and Fisheries, Ministry of Agriculture and Farmers Welfare.
The numbers taken together show that less than 30 percent of the milk in India comes from the organised sector. The rest is through the unorganized sector.
But there is a problem when the Finance Minister wants to double milk processing capacity. Just look at the chart alongside. Milk production has been increasing only at 6-7 percent each year. The Finance Minister wants processing capacity to increase at double this rate. Is this feasible?
It must also be noted that the food processing industry has not been given any financial incentives. Hence the flow of money into this sector will possibly be slow. Thus, to expect processing capacity to grow at 15 percent year on year (it is only at 15 percent growth per annum that you can double capacity in five years’ time) appears a bit unrealistic.
There is a second problem. To get all milk into the organised sector will not be easy. Traders and middlemen will not want to lose their hold over unorganised farmers who are compelled to sell their milk at Rs 18-22 per litre as compared to the Rs.26-36 paid by the organised sector.
It may be recalled that when the government of Maharashtra tied up with NDDB to start a cooperative in Maharashtra that became operational in October 2016, the 30 odd cooperative dairies in the state, most of whom were politically well-connected, were under immense pressure to increase their payment to farmers from to Rs 26 per litre, up from Rs 20-22 per litre. This was lower than the Rs 32-36 per litre paid by Gujarat’s cooperatives.
Maharashtra’s dairy cooperatives tried to disrupt milk supplies, and finally, the state government itself agreed to give these cooperatives a subsidy of around Rs 2 per litre to help them pay the Rs 26 per litre price to farmers.
A similar thing is happening in Uttar Pradesh too, where exploitation of farmers, and the hold of middlemen, is vicious.
There is a third problem the Finance Minister has not taken into account. The rate of growth of milk production in India has begun to decline, even though demand for milk remains strong. One reason for this is the cattle slaughter ban.
As a result, many traders refuse to pick up old cattle – buffaloes or cows – from farmers. Consequently, farmers who got Rs 20,000 to 25,000 per old cattlehead, now get nothing. Conventionally, the farmer used this money and added another Rs 20,000 (borrowed or through savings) and purchased another young cattlehead. This way his future milk earnings were assured.
Now with the unsold old cattle, the farmer loses his income potential.
Not surprisingly, growth rates of milk production in India have begun to slow down. Milk production increased by 7 percent in 2017-18 over 2016-17. But the following year, it fell to 6 percent.
As a result, the biggest loser is the farmer. His community alone lost around Rs 30,000 crore each year (not counting the loss of future business). Worse, he had to pay for the upkeep of old cattle. Because of this flawed policy, the economy could be losing multiple times the Rs 30,000 crore that farmers lose each year.
Expect the dairy industry to gradually drift to the eastern part of India. Most eastern states have refused to enforce cattle slaughter ban laws (it is a state subject). These states have lots of foliage. It will enhance rural prosperity there. But it will take a few years more.
It is difficult to see the milk processing capacity grow in the face of these odds. The Finance Minister can be optimistic. But she must first back this optimism with money for more food processing industry plants. Without that, even refrigerated vans and wagons will become a fantasy as they would be unaffordable and relegated to being mere showpieces.
It may be recalled here, that during Verghese Kurien’s time, the NDDB designed railway tankers which were insulated, not refrigerated, and which could take milk 2,000 km away, without losing more than 1.5 degrees of temperature inside. That was a realistic solution. Today, Amul uses the railways extensively.
Refrigeration as a solution needs a lot more value addition. This requires huge investments in food processing. The budget hasn’t made any provision for incentives for this sector. Without that, refrigeration may become another pipe dream.
