Due to increasing cost of milk production and operations, dairy companies have raised the milk price across India.
Broadly, the cost of food depends on production and operations. Milk is one of the most purchased and consumed Fast Moving Consumer Goods (FMCGs) in India. The per capita milk availability (approximately 430 grams) in India is much higher than the global average (around 330 grams). The total domestic consumption volume of milk was more than 207 million metric tons in 2023. As the price is increasing, people are becoming more concerned about future. In this article, we will understand the major causes of price rise in dairy products.
The Gujarat Cooperative Milk Marketing Federation (GCMMF) responsible for marketing dairy products of ‘Amul’ brand, has announced “a price hike of Rs 2 per litre for all variants of Amul milk, effective from June 3, 2024”.
As per revised prices, 500 ml of Amul Shakti milk, Amul Gold milk, and Amul buffalo milk will now cost Rs 30, 33, and 36 respectively.
The GCMMF representatives mentioned in a press conference that last price hike was made in February 2023.
Jayen Mehta, the MD of GCMMF, said: “The price revision was necessary to compensate farmers for their increased production costs.” Is it the only reason behind price hike? Detailed research on consumer demand, production cost, operations, and weather clearly show another major reason. It is heatwave. Summer and monsoon are critical for food production in India. Extreme heat is not only making our daily lives uncomfortable, but also impacting different industries to cause price hike of foods.
Heatwave and Food Production: Aditi Nayar, chief economist, head research and outreach, ICRA explained: “Hotter than normal temperatures can pose upside risks to inflation for vegetables and fruits in the immediate term, exacerbating the typical seasonal climb in prices seen at the onset of the summer. Moreover, hotter-than-normal temperatures may affect the reservoir levels. A normal and well-distributed monsoon will hold the key to improved crop output and a moderation in food inflation, which will help bolster rural and urban demand, respectively.”
The heatwave decreases animal fodder production, consequently reducing animal productivity promoting milk price hike.
Impact of Heatwave on FMCGs: These products have a low shelf life. Thus, rising temperature is causing a huge burden for manufacturers. “Despite paying higher prices towards milk procurement in the last few months, the consumer prices were kept intact. Moreover, the heat stress across the country has been unprecedented and it is likely to further impact milk production,” Mother Dairy said in a statement.
India is the largest producer of milk and dairy products. In 2023, Indian dairy sector has reached a market size of INR 16,792.1 billion. The dairy market is projected to grow INR 49,953.5 billion by 2032 with a CAGR of 12.88% during 2023-2032, supported by advanced technologies, improved retail and e-commerce services, as well as enhanced cold chain infrastructure.
To combat heat-related stress, companies are focusing on producing dairy products with long shelf life and robust packaging, which are also increasing the cost.
“The increase of Rs 2 per litre translates to the range of 3-4 per cent increase in MRP which is much lower than the average food inflation,” GCMMF said in a statement.
