Covid-19: Milk consumption down 25% in one month as eateries remain shut

In a major setback to dairy farmers across the country, milk consumption in India has declined by 25 per cent during the past one month with hotels, restaurants and roadside tea vendors remaining shut following the nationwide lockdown to prevent spread of coronavirus (Covid -19).

The decline in consumption has affected farmers' economic health with a Rs 5-7 a litre (or about 25 per cent) drop in their realisation. As a result, the milk market is flooded with surplus, with farmers in some areas selling in distress at price cuts of as much as 50 per cent. The distress sales are happening in remote area where private and co-operative dairies can't reach farmers for procurement due to disruption of transport services.

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This scenario emerged after Covid-19 started spreading in major milk producing states across India such as Maharashtra, Gujarat, Karnataka and Tamil Nadu. While production is still going on, decline in consumption may prompt farmers not to make fresh investment in the coming season as the prices of milk derivatives like skimmed milk powder (SMP) have also crashed due to the global lockdown, affecting exports.

"Milk consumption has declined by 25 per cent during the past one month due to closure of hotels, restaurants and roadside tea vendors. But household consumption has increased. The closure of ice cream parlours and outlets serving other value-added products has also contributed to the decline in milk consumption," said R S Sodhi, managing director, Gujarat Cooperative Milk Marketing Federation (GCMMF), India's largest dairy which sells milk and milk products under 'Amul' brand.

However, consumption of ghee, butter and milk for household consumption has increased as people are homebound in the ongoing countrywide lockdown. But this increase does not compensate the overall decline as households make up just 25-30 per cent of India's overall milk consumption.

Interestingly, dairies haven't raised prices of milk derivatives despite the spurt in consumption.

"We are selling our products at the maximum retail price (MRP) fixed," said Devendra Shah, chairman and managing director, Parag Milk Foods, producer of 'Go' and 'Govardhan' brands.

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Meanwhile, the decline in overall consumption has prompted farmers to sell milk in distress especially in remote areas of Maharashtra, Karnataka, Tamil Nadu and Gujarat. Some farmers are offering milk to processors and private dairies even half the current prevailing price of Rs 30-31 a litre. But, overall milk procurement prices have declined by Rs 5-7 a litre due to the lack of transport facility to dispatch milk from farmers in remote areas.

According to Sodhi, large co-operative dairies are bound to pay farmers higher due to their long term linkage with farmers. GCMMF pays Rs 31 a litre for cow milk and Rs 50 a litre for buffalo milk. Private and small co-operatives, by contrast, pay lower in supply glut situation to take advantage of farmers' plight.

"This is a temporary phenomenon for just a couple of weeks more. With the onset of summer which is just nearly a month away, milk supply will reduce and prices recover," said Shah.

Normally when milk supply is higher than consumption demand, dairies produce SMP or milk powder to sell that the peak demand and lean supply season which is just few weeks away.

"SMP prices have crashed due to reducing opportunity for exports due to global lockdown. Shipments are halted, no orders coming in. Despite not adequate quantity of SMP available in the market, it is not feasible to convert excess milk into SMP and store it for supply in peak demand season. Many dairies face working capital problem due to the lack of funding from banks," said Sodhi.

With very thin demand, SMP prices in the domestic markets have declined to trade at Rs 230 a kg now from its level of Rs 310-320 a kg about a month ago. Similar trend emerges in the international markets with SMP prices slipped to quote at $2500 a tonne now as against $3200 a tonne about a month ago.

Dairies, however, hope that the decline in milk procurement prices would nullify squeeze in their profit margins which feared after lower sales of many products like curd, butter milk, lassi and ice creams.