Milk is ubiquitous in India ¡ª from the morning glassful that most middle-class school kids glug to its use in Hindu religious rituals. Now it could become a headache for Prime Minister Narendra Modi¡¯s government as prices soar.
The average retail price of milk in India has increased by 12% from a year ago to 57.15 rupees ($0.6962) a liter. A mix of factors is at play ¡ª a jump in the cost of cereals has made cattle feed more expensive, coupled with lower dairy yields after cows were inadequately fed due to the pandemic rupturing demand.
In turn, milk ¡ª which has the second-largest weight in India¡¯s food basket ¡ª pushes up overall inflation as well. India¡¯s headline inflation for March fell below the central bank¡¯s target of 6% as high interest rates cooled overall demand, according to data released Wednesday. But milk inflation trended higher than the overall figure, at 9.31%.
High prices of milk and related products ¡ª emotive items that most poor families aspire to and wealthier people see as indicators of status ¡ª have the potential of becoming a political risk for Modi¡¯s government ahead of national elections next summer.
¡°This trend of higher milk prices is problematic, since it is a highly price elastic product and has a direct impact on consumption,¡± said R.S. Sodhi, president of the Indian Dairy Association.
For now, the demand-supply mismatch has helped a rally among dairy stocks in India, as analysts expect this situation to help organized players expand their share of the overall market in India.
However, Sodhi said the balance sheet of dairy companies may eventually come under stress as the cost of procurement is rising. One factor is the increase in the prices of cereals and rice bran ¡ª ingredients used in animal feed ¡ª which is discouraging farmers from feeding their cattle sufficiently and is reflecting in milk prices that have risen 12% to 15% during winter months, he said.
Unseasonal rain and heat waves have also contributed to this jump in feed prices. Cereal inflation came in at 15.27% for March 2023.
But trouble was brewing even before prices of cattle feed began to rise.
When the coronavirus pandemic hit and India introduced one of the world¡¯s strictest lockdowns, demand for milk and milk products dipped as many restaurants and sweet shops were forced to shut down, either temporarily or permanently.
India accounts for almost a quarter of the world¡¯s milk supplies, but those massive volumes are produced in large part by tens of millions of small farmers who maintain modest numbers...
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