Milk price soars by 12% Y-O-Y, pushing overall inflation up

Milk prices continue to soar, which in turn is putting pressure on food inflation. The average retail price has increased by 12% year on year to Rs 57.15 per litre.

India’s headline inflation for March dropped below RBI's target of 6%. Meanwhile, milk inflation remained above the overall figure at 9.31% in March 2023. The inflation in March 2022 was 4.7%. Bloomberg quoted India diary association president R S Sodhi and mentioned that the continuous increase in milk prices is problemetic.

"This trend of higher milk prices is problematic, since it is a highly price elastic product and has a direct impact on consumption,” said R.S. Sodhi.

A major factor that affectd the milk price is, rise in cereals cost that made cattle feed expensive and cows were fed inadequately, which lead to lower dairy yield. Unseasonal rain and heat waves played a major role in the rise in feed prices. The cereal inflation was at 15.27% in March 2023. As per Financial Times, wholesale fodder inflation rose to 24% in February, sharply up from 7.14% recorded in January 2022.

However, even before a spike in cereal prices, farmers found it unable to feed their livestock due to the pandemic. Strict lockdown across the country, reduced the demand for milk as restaurants and sweet shops remained closed. Despite being one of the largest milk suppliers in the World, the country's massive amount of milk is produced by many small time farmers who are still unorganised. The drop in demand for milk and milk products during the pandemic, made it difficult for the Indian farmers to feed their cattle.

Amul's Jayen Mehta told Bloomberg, "A cow has to be fed irrespective of whatever quantity of milk it is giving and this is a pressure point for the producer".

The outbreak of lumpy skin disease among the livestock is also a prime factor for the drop in yield. This disease led to the death of an estimated 75,000 cattle and lower milk output from infected animals across several states.

A further rise in price is expected as the onset of summer will lead to less yield, due to heat stress and reduced availability of green fodder. At the same time, the demand is expected to remain high.

This demand-supply mismatch has helped the diary stocks gain and analysts believe that this will help organized players expand their share of overall market in India.

As per Financial Express, for the first time since 2011, India may resort to importing products like butter and ghee as their stocks are lower than in the previous fiscal. Milk production also dropped last fiscal after rising steadily for decades. Organised players in the sector have hiked the price several times in FY23.

Meanwhile, milk exports have also been rising after the pandemic. As per Bloomberg, India exported dairy products worth about $391.59 million in the 2021-22 fiscal year compared to $321.96 million in the year before that.