How come India, the world’s largest producer of milk, had to import it?

The cow economy is in a difficult phase due to a combination of factors. The supply chain of the dairy industry was disrupted (and affected, to a lesser extent, before that) by Covid. In the last six months, an epidemic has affected India’s cattle. This combination has created a supply shortage at a time when demand is growing strongly.

Milk is an essential commodity, so demand is relatively less price-sensitive. The consumption of milk and dairy products does not change much unless the prices change drastically or the life circumstances of the consumers change drastically.

India has a young, growing population, which means a steady long-term increase in demand for milk and milk products. Per capita consumption of 425 grams is higher than the global average of 320 grams per day. Over 80 million farmers contribute to the dairy industry, and India produces 23% of the world’s milk.

In general, the supply of milk has increased by about 6% per year and is in line with the increase in demand. Between 2013-14 and 2019-20, milk production increased from 138 million tonnes to 198 million tonnes at a compound annual growth rate (CAGR) of just over 6%. Milk prices increased by about 3% per year during that period.

In 2020-21, milk production was around 208 million tonnes, but demand fell during the pandemic as living conditions drastically changed. Due to the lockdown, hotels, restaurants and sweet shops were closed and weddings etc. were cancelled. Therefore, the purchase price also fell. This triggered a chain of events that contributed to the crisis we see today. Dairy farmers cut herd sizes in 2020 and 2021. Due to cash crunch, he bought less fodder. Calves and cows were fed less.

Dairy demand is expected to boom in 2022 and 2023 as the economy gradually reopens. But due to lack of investment in the post-Covid years, the supply has not increased much. In 2022-23, milk production was projected to be 223 million tonnes – almost the same as in 2021-22 (221 million tonnes).

In late 2022, lumpy dermatitis infected millions of cattle. This infectious disease causes blisters and reduces milk production. It is often fatal, and is estimated to have killed more than 184,000 head of cattle. This hampered production further.

As a result of higher demand and stagnant supply, as well as higher feed costs and higher transportation costs, milk prices have increased by an average of 15% across categories last year. Every organized dairy supplier, led by Amul, has increased prices multiple times.

Inflation in the ‘milk and milk products’ category has been consistently higher than consumer inflation. It was 9.7% in February 2023, for example, when the consumer price index (CPI) rose by 6.44%. The increase in milk and milk products has also contributed significantly to CPI inflation as this category has a weight of 6.61%.

Rapid increase in milk production is not possible due to biological constraints. Cows take 15 to 18 months to mature. There is a gestation period of 9 to 10 months before a calf is born and milk production begins, so cows start producing milk in their third year itself. Buffaloes take an even longer period of three to four years before the first calving. The milk of malnourished calves born during the Kovid period will also be less. It will take time to increase milk production.

Dealing with lumpy dermatitis and nipping it in the bud is also culturally problematic. Vaccination can prove effective but the most effective way to prevent infectious disease in an animal population (such as mad cow disease, swine flu, avian flu, etc.) is to eliminate the affected population. This is a sensitive issue in case of cattle in India.

In fact, the dairy industry started grappling with supply-chain issues even before Covid due to related reasons. It is economically rational to sell animals when they are old and unproductive. Dairy farmers elsewhere in the world sell older cattle and use the money to buy economically productive young animals. But the rise of ‘cow vigilantes’ makes this replacement process problematic in India.

Given all this, India is likely to import skimmed milk powder and other dairy products in large quantities through 2023-24. While this is economically rational, it is also politically sensitive. Dairy farmers will lobby against it and politicians like Sharad Pawar have started raising objections on their behalf. Supply chains will eventually straighten out given all the imperatives, but until that happens, policy makers will have to walk a tightrope.