Flowing towards stability

CRISIL expects milk prices to have started peaking out after the back-to-back hikes that have made the commodity dearer by Rs 4-5 per litre on-year over the past 9 months or so.

The upmove started in May 2019, with Gujarat Cooperative Milk Marketing Federation (GCMMF, better known as Amul) and Mother Dairy hiking the maximum retail price of their full-cream milk pouches by Rs 2 per litre. The two giants followed this up with a further hike of Rs 2 and Rs 3 per litre, respectively, in December, taking it to ~Rs 55.

Other large dairy processors have started following suit, spurred by the shortfall in milk production around the country, and thereby supply.

To be sure, production has been shrinking since April last year.

Initially, the fall in production was due to high summer temperatures and lower availability of water, made worse by delay in rainfall. Then, there were floods in various parts of the country, which 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. All this led to a decrease in milk yield of cattle, and thereby lower milk production in the country.

Indeed, this fiscal, milk production is expected to be lower by 5-6% on-year at ~176 million tonne. As of December, milk production is estimated to have been lower by ~6%. The flush season that usually begins in November-December is estimated to have shifted by 1-2 months because of the delayed monsoon. So milk production is expected to pick up from this month, which would limit any further fall this fiscal.

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.