The increase is likely as retail milk prices have already risen 10% in a year and 22% in three years. Sharma also notes that poor monsoon and higher fodder prices could further impact milk prices.
New Delhi: Prices of retail milk are expected to go up 4-5% year-on-year in FY24 because of dairy processors fail to recover the cost, which has been hit throughout pandemic, especially during the second wave amid higher commodities prices pushing up fodder prices and weighing on milk productivity, Crisil director Pushan Sharma told Mint in an interview. This comes at a time when retail milk prices have shot up by 10% in a year and nearly 22% in three years. Milk prices may also rise if productivity gets hit because of anticipated poor monsoon in August and September and fodder prices continue to remain sticky or increase.
Sharma further said that poor kharif sowing was caused initially by rain deficiency, with the situation exacerbated by the rain deluge; which may lead to resowing thereby disturbing the crop calendar and switching to short term crops. In the middle term, rice prices are likely to remain firm because of lower FCI stock and the government announcing higher minimum support price for paddy. After a significant rise in almost all vegetable prices, especially tomato, the agriculture economist sees onion prices going up as most of stocks to be exhausted by around mid-September.
Also, rising global temperature causing more pest attacks may weigh on farm crop productivity and thus production in coming days as there is a correlation between metabolic rate of pests and temperature. Speaking about edible oil import outlook, Sharma said India may rely more on Brazil than Argentina to meet its soyoil demand, as the soybean production in the US is hit because of a drought-like situation. Edited excerpts:
Milk inflation remains significantly high in June though slightly eased month-on-month. How is the dairy sector doing and what could be expected as far as milk prices are concerned in the coming months?
The dairy industry has seen a different impact through the pandemic as the artificial insemination of animals was hit especially during the second wave in 2021 when there was a concern over oxygen cylinder not being available. Nitrogen production was diverted towards oxygen and nitrogen is required to keep the semen of animals. This affected artificial insemination in animals, resulting in lower calf birth and consequently a decline in milk production.
Milk production was also affected because of farmers being unable to take care of animals well in the pandemic when commodities prices shot up influencing fodder prices. This left a significant impact on overall milk productivity which then manifested in shortages of ghee, butter etc. over a year and half.
The procurement price for milk (dairy processors pay to farmers) also went up because of lower milk production and high cost of fodder. Some of the cost was passed to the retail customers. When we look at the profitability of various dairy processors, it has been coming down over the last couple of years and this implies dairy processors are not being able to completely pass on the cost increase that they have faced to final retail buyers.
As a result, we have seen a significant hike in milk prices and this year, too, we are expecting a 4-5% year-on-year rise in FY24. The reason for the anticipated rise is because of the under-recovery in cost over the last year. Additionally, if there is a productivity issue because of poor monsoon in August and September and fodder prices continue to remain sticky or increase, it could contribute to the hike.