Milk prices are rising, as producers and marketers pass on higher costs to consumers.  Amul and Mother Dairy raised milk prices by ₹2 each this week, the second such hike this year.

Why are milk prices going up?

• High operating cost: For dairy companies and cooperatives, the cost of operation and production of milk has increased.
• Fodder price hike: Prices of cattle feed, which includes maize, wheat and soybean, are up 20% over the year.
• High procurement cost: Given the rise in input costs, its member unions from where it procures milk have increased farmers’ price in the range of 8-9% year-on-year.
• Cost sharing: In an already inflationary environment, dairies are compelled to pass on price increases to consumers as procurement prices go up.

Has demand for milk picked up as well?

• A better rate of vaccination, resumption of offices, schools and even opening up of channels such as hotels and restaurants have led to higher out-of-home consumption of foods and beverages in the last two to three quarters.
• This has led to greater demand for milk and other dairy beverages.
• Analysts cited higher skimmed milk prices in the international markets that they said make exports of the commodity out of India more attractive.
• A combination of these factors is pushing up milk procurement prices, and leading to higher retail prices.

But isn’t wholesale inflation cooling down nowadays?

• Yes; India’s wholesale price-based inflation eased to 13.93% in July.
• In fact, WPI inflation in milk eased in July to 5.45% compared  to  6.35%  in  June,  though it remained high compared to February.
• However, companies also pass on hikes with a lag to lessen the impact on demand. Amul says the increase is less than 4% — below the food inflation rate of 8-9%.

When will milk prices cool down?

• Milk procurement is also dependent on the flush season that runs between September to February.
• This is the peak lactating period for cattle due to better availability of green fodder and water.
• As a result, the period in general sees higher milk production and availability.
• The onset of  the  flush  season  could offer some relief to dairy companies in the second half of the current fiscal year.

What does this mean for consumers?

• For households, an  increase  in milk prices obviously means shelling out more money; this in a country that is among largest consumers of milk.
• In fact,  by July,  dairy companies had raised milk selling prices by 5-8% in a six-month window.
• Consumer demand typically sees an impact in the first few days after price hikes are initiated. However, recovery happens gradually.
• Consequently, higher milk procurement prices could also hurt companies that make bakery products or food items that use milk or milk solids.

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Concept of Inflation/Deflation/WPI/CPI/IIP

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