November 14, 2011
Milk prices have increased 11 times in last four years. A look at why it's a practically unaffordable business now

A middle class family of four spends Rs 58-72 daily on milk depending on whether they prefer the cream or skimmed variety. For a poor household, which according to the Planning Commission can survive on Rs 32 a day, the daily expenditure on milk cannot be more than Rs 7, regardless of the number of members. Needless to say, for Rs 7, such a household can only afford 250 ml of the double-tone variety.

This is what Birmashri Rathore, a mother of five, gives her children if she has a little money left after arranging the daily potato and rice meal. The milk, whenever it comes, is carefully rationed. Almost half of the 250ml is used up for tea, the rest is watered down for children. Every time Mother Dairy, the biggest milk supplier in Delhi, hikes prices by a rupee or two (something which has happened more than five times in the last two years) Birmashree’s children have to go without milk for a few more days. "Last year, we stopped eating dal because it had become so expensive and now milk is out of bounds,” Rathore says.

But what has caused such an alarming rise in milk prices?  Ironically, milk is one commodity which is untouched by market speculation as regards prices. Instead, cattle feed and fodder, which constitute almost 70 per cent of the production cost of milk, are affected by market forces. 

Scramble for fodder 

Usually, fodder for livestock includes dry wheat, millet, paddy stalks and green fodder. Then there are concentrates like de-oiled cakes and molasses.In fodder deficit areas like Rajasthan, dry fodder costs Rs 500 per 100 kg on an average. The rates go up in summers just before harvest because of water shortage leading to dry pastures.

Tejpal Mehta, a dairy farmer in Rajasthan's Alwar district owns 100 animals. He also owns eight hectares of land. But it seems even that’s not enough in times of scarcity. “If the yield is good, I get about eight tonnes of fodder annually. The additional 12 tonnes that I need, I buy from the market. The fodder that used to cost Rs 50 per 100 kg about 10 years ago is these days not available even for Rs 800, Mehta says. The standard rate for wheat or bajra straw anywhere in Rajasthan at the time of harvest is Rs 5-6 per kg. In Gujarat, it varies from Rs 4-5 while in Maharashtra the rates range from Rs 4.50 to 5.50 per kg.

The groundwater level is now below 150m. The crop yield is not as good as it used to be. Where will the fodder come from,” asks Mehta. Because of lack of water, farmers can’t even grow fodder. Then there is the prohibitive cost of seeds. A kilo of Lucerne (alfalfa) seeds, a leguminous green fodder, costs Rs 300. “You can imagine the high input cost of sowing when one acre requires 30 kg of seeds,” Mehta says. Ideally, 25 per cent of animal feed should comprise green fodder, but Mehta’s animals do not get any more than 2-3 per cent. Concentrates like de-oiled cakes of groundnut, mustard, rice bran, rapeseed, sunflower and soy that are important sources of protein for the animals are rarely available for local farmers as they are exported. In 2009, oil-cakes worth Rs 5,000 crore were exported with a 7 per cent incentive from the Ministry of Civil Supplies.

“Rice bran which is the largest exported agro-commodity from India, goes to West Asia, China and Southeast Asia for feeding livestock bred for meat,” says V K Singh, of Milkfed, Punjab’s co-operative dairy in Chandigarh. The price of de-oiled rice bran in Gujarat has gone up 83 per cent between 2006 and 2010 (from Rs 3,483 to Rs 6,380 per Metric Tonne) while that of rapeseed oil cakes has gone up 131 per cent— from Rs 5,141 to Rs 11,871 per MT. “There are reports that some milk producers find it more profitable to sell their animals for meat instead of continuing milk production,” says Amrita Patel, chairperson of the National Dairy Development Board in her address to the Dairy Industry Conference held in Bengaluru in February 2010. This is because there is a 4-6 per cent incentive on the export of buffalo meat while in the milk trade, forget profit, even the cost is hard to recover in the summers when milk production dips to the minimum.

Why the cattle lost their feed 

Even today, dairy engages 18 million people, 5.5 per cent of the national work force. Milk is the main source of income especially for the landless. In the 1970s, when Operation Flood was launched, the mission was to increase milk production in India using techniques like artificial insemination, introduction of high-yielding foreign breeds of cows and giving specialised feed pellets. India soon became the top milk producer in the world with production going up from 20 million tonnes in 1960 to 106 million tonnes in 2007. But the consumption went up too. According to Food and Agriculture Organisation (FAO), it increased from 57.7 kg per person per year in 1995 to 65.2 kg in 2005. Though the production target was achieved, the white revolution, like the green revolution in the country, broke the back of the traditional mixed farming system.

Before the 1970s, dairy farming depended on crop residue, pastures and forests. The harvest from the fields was fodder for animals while the dung from the animals provided organic manure for the fields. Increased dependence on wheat and rice phased out millets which are taller grain varieties and hence produce more fodder. Even the native breeds of wheat used to have taller stalks yielding more fodder than the present varieties. Since fertilisers are now being indiscriminately used, organic manure is not a necessity. Hence, farmers are doing away with cattle.

With Operation Flood came a commodity-specific system. Since more milk could come only from better breeds of cows, the expensive Holstein Fresian and Jersey were introduced. “They yield more milk but require more to eat,” says Hemant Sharma, a dairy shop owner in Alwar district. “In the 1970s, there was a blanket recommendation to crossbreed cows with foreign species which led to our own hardy species disappearing,” says Anil Kumar, a senior scientist at Indian Grasslands and Fodder Research Institute in Jhansi.

“In Odisha, people took up crossbred cows after the cyclone but the straw available was too little for the heavy eaters,” says N R Bhasin of Indian Dairy Association. The animals with foreign genes were not used to free-roving pastures and needed to be stall-fed. Because of the unbearable tropical heat farmers had to install fans and coolers in cattle sheds, which meant an additional cost of electricity. Despite all this, the medical cost of the cows went up. The cross-breds' food began to be bought from the market and 'non-traded inputs' as the Food And Agriculture Organisation calls them, began to lose importance with increasing demand in milk. In Punjab and Haryana, almost all farmers now hire combine harvesters. “The harvester slices off the top end of the wheat plant that has the grains, leaving the large part of the stalk standing on the field,” says Sharmila of Burheda village in Gurgaon in Haryana. “We have to ask the harvester-owner to do a second round of cutting if we want the fodder. For this he charges Rs 100 per 100 kg. Even then a lot remains on the field which has to be eventually burnt down,” she says.

In Punjab too the straw left over by combine harvesters is burnt. One of the largest producers of dry fodder, the state has banned burning of crop residue, but that seems to be only on paper. Gathering the fodder does not make business sense. There is no profit to be made after paying for labour costs to cut and bundle the fodder and then to transport it to other states.

Disappearing pastures

For landless people, dairy farming was the main occupation in rural areas because common pasture land and forests were at their disposal. According to National Forestry Action Programme of the Ministry of Environment and Forests, around 60 per cent of the livestock (about 270 million heads) graze in forests. This is nine times the carrying capacity of forests i.e. 30 million. The disappearance or encroachment of the village common land (shamlat or Guachar) has further constrained the resources of a landless dairy farmer. In Gujarat's Mundra taluka where industrial group Adani's special economic zone is coming up, the sarpanch of the village Zarapara sold nearly 650 hectares of common grazing (gauchar) land to the company. “The sarpanch told the collector there are hardly any cattle in the village. But that is not true; there are 8,773 heads,” says Valjibhai M Tapariya, BJP leader from Mundra.

As per Gujarat government norms, there should be 16 hectare of grazing land for every 100 livestock heads and 8 hectare in a forest area. In 2003, the deficit was about 75 per cent, wrote Charul Bharwada and Vinay Mahajan in a paper titled Quit Transfer of Commons in Economic and Political Weekly (January 28, 2006). “If more than one million hectare wasteland in the state is developed as grazing land, the deficit can be covered to some extent. But this land is being given to industry at throwaway rates,” says Bharwada, architect-planner who has been studying pastoral communities at Sandarbh Studies, a non-profit organisation in Ahmedabad.

What’s the deficit, again?

As per a 2007 study by NABARD Consultancy Services, there is a 36-57 per cent gap between demand and supply of fodder in the country. The 10th Five Year Plan projected the demand for green fodder in 2010 at 1,060 MT. “The greatest concern today is that there are no reliable statistics, be it dry or green fodder or concentrates. Whatever data is available is of the 2003 livestock census and every policy initiative is taken up from there,” NDDB’s Patel says.

According to estimates by the Indian Grasslands and Fodder Research Institute in Jhansi, by 2020, the country will require 850 million tonnes of green fodder, 520 million tonnes of dry fodder and 90 million tonnes of concentrates. Patel is worried many farmers are now moving away from cereal crops that yield fodder because there is more money elsewhere. “Farmers in Mehsana, which has the largest milk cooperative in Gujarat, are switching to potato because fast food chains want a particular variety of potatoes to make French fries. Then there is tobacco cultivation that is replacing cereal crops,” Patel says.

The area under dedicated fodder cultivation has remained constant since independence at 4.7 per cent of the total cultivable land; 10 per cent of which is in Punjab. Diverting the area under food crops to fodder crops is not feasible. However, of the land already under fodder - about 10.8 million hectare - as per the 2002-03 census, not even 3-4 per cent is produced from fodder seed but from cereals like maize and pearl millet. “Due to such anomaly, the yield is less than 50 per cent of a good fodder crop. We are trying to plan in a way that in the next 15 years we get at least 10 per cent of this area under good green fodder,” Patel says. NDDB is preparing the National Dairy Plan that will focus mainly on breed improvement and augmenting cattle feed. The plan has an outlay of Rs 17,300 crore from the World Bank till 2021.

NDDB is also devising a ration balancing plan. Ration balancing involves assessing the nutrition requirement of the animal and then computing the available feed and fodder products in the area. “For example, in places where pineapple and banana leaves are in plenty, these can be added to the basket of green fodder,” says Patel. NDDB has also developed a software to compute a localised fodder mix and it is training villagers to use it. Transport of fodder from areas of excess like Punjab to areas of deficit by briquetting it is another solution that the government is trying. There is a 50 per cent subsidy in place for people wanting to start a business in fodder densification. However, very few entrepreneurs have come up for this, says an official of the Ministry of Agriculture's Animal Husbandry department.

In the absence of any solid plans, milk production may continue the downhill journey pushing prices up. Let’s hope we don’t have to cry over spilt milk.

Edited by: Ruchi Nagar