Economic Survey: Why are milk prices on the climb?

Soaring milk prices? Blame it on rapidly rising demand from urban consumers. Several reports in the recent past have suggested that a change in Indian dietary habits towards protein-rich foods has been responsible for the surge in prices of milk, dairy products, eggs, fish and meat.  That change in dietary habits was triggered by rising nominal rural wages because of the MNREGA scheme, supply-demand mismatches and shocks from global food inflation, the argument went. [caption id=“attachment_245544” align=“alignleft” width=“380” caption=“The survey also seemed skeptical of supply-demand mismatches. Reuters”]  [/caption] The Economic Survey, however, does not think these explanations fully adequately explain this phenomenon. It said demand for more expensive protein-rich foods is unlikely to have arisen because of rising incomes in rural areas. “Fast-growing urban consumers benefiting, for example, from the government’s sixth pay commission pay hikes in 2008-9 and even larger private-sector salary hikes after a spectacular urban growth spurt during 2004-8, are a far more likely source of rising demand,” the survey said. “Monthly per capita liquid milk consumption in urban areas (from National Sample Survey data) is far higher (5.4 litres) than in rural (4 litres); milk products (powder, solids, paneer, cheese, others) consumption is overwhelmingly urban and fastest growing (over 12 per cent per annum) — a pattern seen worldwide — whereas much of rural consumption is in own use, non-market forms that only affect market prices from a distance.” The survey also seemed skeptical of supply-demand mismatches. “It turns out that inability to produce milk is not necessarily the problem,” it said. “India is the world’s largest milk producer, milk production has been growing by over 4 per cent per annum, twice as fast as general agriculture and world production, and as rapidly as rising demand, raising per capita consumption successfully from 217 g to 263 g per day during 2000-10. Exports of milk products are also growing. “Thanks to the ‘white’ revolution, the sector is relatively better organised, a success story worldwide, by helping smallholders into cooperatives and arranging an efficient collection, storage, and distribution system.” To buttress that view, the survey noted that the prices of pulses have climbed at a slower pace. “Despite weaker and more volatile production, pulses, the poor-man’s protein, have seen a lower price rise,” it said. Finally, it pointed out that local milk prices were also influenced by surging global milk prices, although the pace of the price rise in local milk prices was faster: Indian milk prices doubled from $200 a tonne in 2002 to well over $400 a tonne.“Such higher prices are expected to lead to rapid production response, although rising feed costs (fodder) for smallholders are a major factor in a land-scarce country,” it said. For more on the Economic Survey’s chapter on Prices and Monetary Management, click here.