Milk is ubiquitous in India — 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 jump in the cost of cereals has made cattle feed more expensive coupled with lower dairy yields as cows were inadequately fed due to the pandemic rupturing demand at the time.
High prices of milk and related products — emotive items that most poor families aspire to and wealthier people see as indicators of status — have the potential of becoming a political risk for Modi’s government ahead of national elections next summer.
For now, the demand-supply mismatch has helped a rally among dairy stocks in India as analysts expect this situation can help organized players expand their share of overall market in India.
Unseasonal rain and heat waves have also contributed to this jump in feed prices. Cereal inflation came in at 15.27% for March 2023.
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.
“A cow has to be fed irrespective of whatever quantity of milk it is giving and this is a pressure point for the producer,” said Jayen Mehta, who heads India’s largest dairy cooperative, Gujarat Cooperative Milk Marketing Federation, which owns the iconic Amul brand.
“In terms of the outlook for this year, we believe that milk prices will continue to increase, since there is a shortage of milk heading into the peak demand season,” Madhavi Arora, economist at Emkay Global wrote in a report this month.
While Modi revamped a food program to make monthly rice and wheat rations free for about 800 million Indians, higher prices of other kitchen staples add to the pressure on his government to do more to help citizens cope with the rising costs of living. That’s crucial as he prepares to seek reelection next year in a country that has by far the largest number of poor people worldwide.
Analysts expect Modi to win as the opposition remains in disarray. But the government may still have to do some heavy-lifting to beat back price pressures, given the Reserve Bank of India has already paused monetary tightening amid mounting growth risks.
Amul’s Mehta describes it as walking a tight rope. On one hand, it is about limiting the impact of inflation on consumers for an essential item, while simultaneously ensuring producers get a fair price to encourage them to continue producing milk, he said.
“I think twice before making that extra cup of coffee,” she said, adding that there is no room for buying more, especially for a family of eight who consume three liters of milk each day.
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