How rise in prices of key food articles is impacting your daily budget

The first of a two-part series on 'Kitchen woes' shows how prices of milk, sugar and wheat have moved lately

Every morning, 45-year-old Savita Devi goes to the nearest grocery store to fetch a packet of milk, a routine she has been following for years. Now she wonders if she can afford to buy milk anymore. In the last few days, the cost of the packet of milk she buys daily has gone up. Most popular brands have raised the price of liquid milk by up to Rs 3 per litre.

The increase is unusual as it has come in the middle of the flush season, when milk supplies are abundant. In the last few months, milk procurement prices in the country have moved up by 20 to 35 per cent. Industry experts say this, together with the rise in the prices of sugar and wheat, could impact prices in the FMCG market. 

Needless to say, the rise in the price of milk has been a boon for millions of milk suppliers across the country. It signals a much-desired reversal of trend after three-years of low price realisation and could mark a turnaround in India’s rural sector, depending on the level of transmission — from end consumers to farmers.

When it comes to milk, a delayed onset of the flush season, coupled with the anticipated shortage in milk production, has pushed prices northwards.

“As per our estimates and going by the arrivals so far, India’s milk production in 2019-20 could be 8-9 per cent less than the 186 million tonnes produced in 2018-19,” said Rahul Kumar, managing director of French-Dairy major Lactalis India, which owns Tirumala Milk Products, Anik Industries and Maharashtra-based and BSE-listed Prabhat Dairy in India.

To tide over the milk demand during the lean season from April-May to August, India needs to have 150,000 tonnes of skimmed milk powder (SMP) in stock. However, currently, the country’s SMP stock has dropped to just around 30,000-40,000 tonnes.

SMP prices in the open market have more than doubled in the last one year — from around Rs 150-160 per kg to almost Rs 300 per kg. Market watchers predict that prices may go higher this summer. 

Kumar feels that the milk market should not have come to such a pass since many of the players said abundant milk supplies was one of the reasons for India not joining the Regional Comprehensive Economic Partnership (RCEP). The country exported almost 64,000 tonnes of SMP in 2019 with a Rs 50 per kg subsidy, offered by the governments of Gujarat and Maharashtra, and an added incentive of 10 per cent from the Centre. 

“The panic exports should have been avoided and there should have been proper planning and foresight by the government to estimate the availability of milk in the country and what could be the supply-demand scenario,” Kumar said.

He said the government could meet the supply shortage by launching a one-time import of 80,000-90,000 tonnes of SMP in the next 6-8 weeks.

However, larger players such as Amul are opposed to this idea. They feel that imports at this juncture will dampen procurement prices and hurt the average dairy farmer.

“There is absolutely no shortage of milk and whosoever is saying this is anti-farmer,” asserted RS Sodhi, managing director, Amul. He said last year’s low price of SMP was due to distress sales and should not be seen as a healthy sign.

“The lean season for milk starts after April and the flush season has just begun. If we import any milk at this juncture, it will needlessly dampen prices. If at all any import is needed, we should wait till April,” Sodhi said. If the milk sector faces a dilemma over whether or not to import in order to cool prices down, there is no such confusion in the case of sugar and wheat

Ex-mill prices of sugar have stayed in the range of Rs 31-34.5 per kg for the last few months, which is marginally more than the Rs 29-30 per kg rate during the same period last year, according to senior industry officials. But experts feel that going forward, there won’t be any big surprises from sugar in terms of prices.

 

“My understanding is that the market has factored in that sugar production in 2019-20 would be around 26-27 million tonnes, which is almost 22 per cent less than the last sugar season, and ex-mill prices would remain range-bound within the Rs 31-34.5 per kg across India,” said Abinash Verma, director general of Indian Sugar Mills Association (ISMA). The sugar season runs from October to September. Verma strongly denied that subsidised exports had contributed to keeping prices above last year’s level.

“We started the 2019-20 sugar season with an all-time high opening stock of 14.5 million tonnes. If we manage to export all the allocated 6 million tonnes, we will still be left with a closing stock of 8.5 million tonnes, which is double the requirement. So, where is the question of exports contributing to any firming up of prices,” he asked.

In case of wheat, the third commodity which has a direct bearing on final prices of FMCG goods, market players feel that just like sugar, its prices would cool down as soon as the government releases more stocks into the market or when the new crop arrives. Wheat is projected to have a bumper harvest this year. 

 “At present, wheat prices in Delhi’s mandis are quoting at around Rs 2,300 a quintal, which is 12-15 per cent more than prices during the same period last year. However, this is largely due to slow inventory liquidation from state granaries. I don’t think this price is sustainable as the coming wheat crop is projected to be huge. Besides, the government’s own grain inventories are brimming,” said a senior executive at a multinational grain trading firm. 

He said, moreover, that end-use industry should not expect the same price to prevail at all times.

 “Wheat is produced for four months and consumed for the remaining months, how can prices be uniform?” he asked. Apart from milk, sugar and wheat, price of edible oils, which also goes into consumer goods as inputs, has also seen an increase.