Milk it for all its worth
Dairy and the livestock economy is undergoing a radical change , necessitating food imports which India shouldn’t be shy of Milk, Eggs, Onions, Tomatoes… No, this week’s column is not about how to make a juicy omelette or a French toast. It’s about the troubling aspect of rising prices and inflation in food items. In November 2019, the overall consumer price inflation (also called retail inflation) rose to a four-year-high of 5.5 per cent. The December data may even cross 6 per cent. It’s being driven by food items, mostly vegetables, including the TOP trio – tomatoes, onions and potatoes.
Onion prices grabbed headlines since their inflation rate crossed 150 per cent. It’s no comfort to know that onion inflation is now in double digits only. They are still priced above Rs 100 per kilo in cities, necessitating imports from places like Egypt. When India starts importing food items, be they onions or pulses or sugar, the world takes note. Exporters, including countries like Egypt , want to take advantage and hence start raising prices. So imports into India might solve the shortage problem, but may not cool off inflation completely. Delhi elections are upon us and onion prices will feature prominently.
The more troubling development is in the rise of milk and eggs prices. Eggs and other poultry products have risen by nearly 30 per cent in just one month. This has been because the feedstock prices have risen steeply, too. The chickens are fed a meal of soyabean, groundnut and maize cake. All these ingredients have risen by 20-30 per cent. So the poultry industry has no choice but to pass on the increase to retail customers.
The same is even more true of milk production. Here too the cost of inputs has gone up substantially. Due to unseasonal and heavy rains and flooding, there was damage to crops and feedstock. Resultantly, the costs have gone up, and milk prices had to be raised. The leaders like Amul and Mother Dairy have increased their prices by nearly 10 per cent and other dairies have followed suit. Milk prices may rise further, unless some stabilisation policies are undertaken. This involves stocking up on skimmed milk powder (SMP) and other fats. Milk products like ice-cream and frozen yoghurts contain more than 20 per cent of SMP and fats. The price of SMP has shot up by 30 per cent in just one month. This has prompted the industry guys to ask the government to allow import of SMP and milk fats from countries like New Zealand. But import duty can be as high as 60 per cent, making imports very expensive.
If you liberalise imports, it contradicts our stand in refusing to sign the Regional Comprehensive Economic Partnership (RCEP) agreement, which we rebuffed recently in Bangkok . One of our key concerns was the glut of milk imports threatening our dairy industry. And now that very industry is pleading for duty free imports. Such frequent swings from exporting to importing are common in agriculture trade.
The milk sector is very crucial to Indian agriculture. One in every five farmers is connected to dairy. Livestock economy is now as important as the food grain economy. Yet India’s per capita consumption of milk is much below world standards. Protein consumption – whether via eggs, pulses or meat – is also very low on a per capita basis. No wonder India ranks low in the world hunger index especially for children. The fact is that we have to depend on the external world to meet our food needs. Gone are the days of feeling proud about being self-sufficient in food production. We are desperately in need of augmenting food security by collaborating with land and resource-abundant countries like Canada, Australia or Ethiopia; the Chinese realised this some time ago and aggressively went after large corporate style agricultural investments into Africa, South America or Central Europe.
We too can’t afford a closed economy outlook when it comes to agriculture and food trade. India’s food demand is going to rise faster than domestic production growth, so import dependence is imminent. If we don’t augment supply then food inflation will be out of control. A few years ago, in 2011-12, when milk and egg prices were zooming, the late Subir Gokarn of the Reserve Bank called it India’s protein inflation problem, as diets are changing and production wasn’t keeping pace.
Interestingly, the food inflation during fiscal year of 2018-19 was the lowest in the past 30 years. But this also affected the rural economy adversely. We cannot have the terms of trade so adverse against the farmer and so favourable to the urban consumer. Food inflation must be positive and large enough to provide a decent livelihood to the farmer, including for dairy, eggs and meat. But not so high, which means we have to be open about import of items like milk, eggs and onions, too.