Milk Imports Surge Due to Disease Outbreak in Local Cattle Stock

Farmers are dealing with a rare double whammy: a fatal ailment known as lumpy skin disease in their cows and a drop in market-ready cattle stock as a result of the coronavirus outbreak. Milk prices have already risen by more than 15% in the last year to Rs 56 ($0.68) per litre, the fastest increase in a decade, making it difficult for the government to bring retail inflation within the RBI's target. 

Milk and other basic products prices are expected to become a political issue ahead of state elections later this year. "Any upside risk from higher milk prices will pose an additional challenge," said Kotak Mahindra Bank's chief economist, Upasna Bhardwaj.

"Because milk has a weightage of 6.6% in the consumer price index, any increase could have a reasonable impact on headline inflation," she explained. A 39% increase in dairy product exports in 2022, followed by lower milk supplies, has already reduced butter and skimmed milk powder (SMP) inventories in India, even as rising incomes increase demand for protein-rich dairy products, a key source of calcium, vitamins, and protein for a large vegetarian population.

Dairy product demand is expected to climb 7% this year, according to industry officials. However, milk output is expected to expand by only 1% in the fiscal year ending March 2023, significantly below the decade's average annual rate of 5.6%, according to a senior member of the government-backed National Dairy Development Board. The official refused to be identified since he was not authorized to speak to the media.

Ramavatar Sharma, 57, of Khejri Bujurg hamlet in Rajasthan, a major milk-producing state, wants to profit from increasing milk prices but is having difficulty finding affordable animals. "Cattle prices have doubled because there are fewer cows on the market," said Sharma, who has raised cattle since he was a child. This is in contrast to former years, when costs plummeted in the aftermath of the coronavirus outbreak. While cows were less expensive, coronavirus lockdowns reduced milk consumption.

Farmers were unable to increase herds as a result of these losses, which limited milk stock even during the so-called flush season, which spans from October to February and is when dairies build supply for the lean season. Farmers and dairy managers say they must now wait until the next flush season in October to replenish market-ready cattle stocks and dairy product inventories.

"There is no way we can increase milk production by 2023," said Santosh Sharma, general manager of Saras Dairy, a major Rajasthan supplier. According to Devendra Shah, chairman of Maharashtra's Parag Milk Foods, the extraordinary spike in milk prices during the flush season has produced unusual market pressure, particularly during the high summer months. "We will see further increases in milk prices this summer," Shah said.

These pressures mean that India would rely increasingly on imported SMP, according to farmers and dairy officials, further restricting global supply and causing worldwide prices to rise. SMP imports are expected to reach an all-time high in the fiscal year that began in April, surpassing records set in 2011-12, according to dairy sector officials. To alleviate the strain, the government might allow limited duty-free imports of SMP and butter, though volumes would need to be managed to avoid price crashes, according to an NDDB official.

Even with import duties, milk and cream imports climbed by 1,024 percent year on year in January to $4.87 million, as dairies increased purchases from France, Germany, and Poland. According to the NDDB official, the temporary lifting of these taxes will result in even higher imports. According to government data, lumpy skin disease, which causes blisters and lowers milk supply in cows, has infected millions of cattle and killed more than 184,000 in India, including approximately 76,000 in Rajasthan.

Farmers in Rajasthan who were able to protect their livestock through vaccines are now complaining about lesser incomes as a result of the disease's impact on low-yielding cattle. "Even cows that survived after spending a lot of money on medicines and vaccination are now producing less milk than before," Sharma remarked, pointing to one of his cows with disease-related lacerations.

Cattle breeding suffered during pandemic lockdowns due to a lack of village-level veterinarians who could perform artificial insemination. Consumers are already feeling the pinch as a result of supply issues. "We have stopped adding milk to our tea just to ensure that our children get milk. However, any further price increases will put milk out of our reach," said Satyendra Yadav, a Mumbai construction worker.