Milk prices are rising despite healthy supply due to increased production costs and the need to compensate farmers. While private brands like Amul have raised prices, cooperatives and state-supported dairies have largely kept prices stable, highlighting the complex balance between costs and fair producer compensation.
Despite a stable supply of milk, recent price hikes by major brands such as Amul and Mother Dairy have raised questions about the underlying factors driving these increases. Here’s an in-depth look at why milk prices are rising even when the supply remains healthy.
Recent Price Increases
Earlier this month, prominent milk brands Mother Dairy and Amul announced a price increase of Rs 2 per liter. This move, which came shortly after the conclusion of the 2024 general elections, marked the first significant price hike in nearly 15 months. Shortly after, the Karnataka Milk Federation, which sells milk under the Nandini brand, also raised its prices by Rs 2 per liter.
The Role of Private vs. Cooperative Players
The price adjustments made by private milk producers have been notable, but cooperatives and state-supported enterprises have largely managed to keep their prices stable. This stability contrasts with the trend seen among private players, reflecting a divergence in pricing strategies across the industry.
Interestingly, some dairies in southern India have actually reduced their retail prices, adding another layer of complexity to the pricing landscape. This reduction could be attributed to regional supply and demand dynamics or competitive market pressures specific to the southern states.
Factors Behind the Milk Prices Hikes
The price hikes by brands like Amul have been driven by several key factors:
1. Increased Operational Costs: According to the Gujarat Cooperative Milk Marketing Federation (GCMMF), the price increase is primarily due to rising overall costs associated with milk production and operations. This includes expenses related to feed, labor, transportation, and processing.
2. Compensation for Farmers: A significant portion of the price increase is intended to compensate milk producers for their higher production costs. Amul, for example, passes almost 80 paise of every rupee paid by consumers back to milk producers. This policy is designed to ensure that farmers receive fair remuneration and are encouraged to continue producing milk.
3. Sustaining Milk Production: The price revision is also aimed at sustaining remunerative prices for milk producers. By providing fair prices, the dairy sector can maintain production levels and incentivize farmers to increase milk output, which is crucial for meeting future demand.
Market Impact and Consumer Perspective
With the new price adjustments, the cost of various Amul milk variants has risen. For instance, the price of a 500 ml pouch of Amul buffalo milk now stands at Rs 36, Amul Gold milk at Rs 33, and Amul Shakti milk at Rs 30. Although the increase translates to a 3-4% rise in the maximum retail price (MRP), this is still relatively moderate compared to broader food inflation trends.
The price hikes are not uniform across all regions. While some areas see increases, others, particularly in southern India, are experiencing price reductions. This variation underscores the regional differences in milk pricing influenced by local market conditions and competition.
The rising milk prices, despite a healthy supply, are largely attributed to increased operational costs and the need to provide fair compensation to milk producers. While private players have implemented these price hikes, cooperatives and state-supported enterprises have managed to maintain stability. As the dairy industry navigates these economic pressures, consumers may see further fluctuations in milk prices depending on regional dynamics and broader market conditions.
