Do You Think the Dairy Farmers in India are Getting Fair Prices for their Milk?

In the recent months, the Indian dairy farmers have been supplying milk directly to the retailers and bulk consumers to draw better prices for their milk rather than trading it to the organized milk collection centers associated with a corporate brand. This is seen as a big blow to the Rs 6000 billion Indian dairy industry as the farmers are targeting the HORECA (Hotels, Restaurants, and Café) segment, and causing a threat to the dairy federations regarding milk availability for immediate and future projects.

The new course of supply began in Andhra Pradesh with farmers coming together along with local HORECA chains and Farmers Produce Organization (FPO), to obtain a rise of at least Rs 4-5 as against paid by the organized dairy corporates and bulk suppliers. The organized companies have been paying Rs 21-22 a liter of milk to the farmers, swayed by the oversupply of milk owing to the increased milk production, and the farmers believe that the amount cannot suffice the cost of production. On the other hand, the HORECA chains are proposing Rs 24-25 a liter through direct milk procurement from farmers.

"The management of Heritage Foods said in an analyst meeting that lower milk prices are expected to boost margins of milk-processing companies. However, many farmers/agents have started selling excess milk directly in cities without any processing. They are targeting the HORECA segment and also selling milk to small tea stalls, thereby posing a threat to organized players," said Aniruddha Joshi, an analyst with ICICI Securities.

The organized companies see two ways to confront the problem. They can either reduce the selling price of milk and extend some benefits to the distributors and HORECA segment, or magnify the margin with low sales volume.

As per the recent report from Rabobank, India’s milk production is envisaged to acquire 180 million tons of milk by 2019, growing from 165.4 million tons in 2017 at 4.9% CAGR. India remains the highest milk producing nation worldwide and the factors contributing to its high growth over the last decade include high cattle output, minimum feed prices, and continued increase in demand for milk.

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Do you think the dairy farmers in India are getting fair prices for their milk? Or you think the rates must be decided based on the fat & SNF value given by the milk testing machine apart from considering other regional parameters?