If Farmers Do Not Receive 70-80% of Milk Sale Price, the Dairy Industry Will Face Serious Problems: R.S. Sodhi

India’s dairy sector is coming under increasing pressure from rising temperatures, soaring cattle feed prices and higher production costs. Recently, major dairy brands including Amul and Mother Dairy raised milk prices, but questions remain over whether the benefits are actually reaching farmers. Is the growing cost burden slowing investment and growth in the dairy industry? In an interview with Editor-in-Chief of Rural Voice Harvir Singh, former Managing Director of Gujarat Cooperative Milk Marketing Federation (GCMMF) and former President of the Indian Dairy Association R.S. Sodhi discussed the impact of rising feed costs on farmers’ incomes, concerns over price controls, the shift toward value-added products, implications of FTAs and the recent slowdown in milk production growth. Excerpts from the interview:

-Recently, Mother Dairy and Amul increased milk prices. Why was this hike necessary?
Milk prices were raised by Rs 2 per litre in May. Cooperative dairies implemented the hike first, followed by private companies. Before this, prices were increased on May 25 last year. Earlier hikes of Rs 2 per litre were also announced in June 2024 and February 2023. Overall, milk prices have risen by Rs 6 per litre over the past three to three-and-a-half years.
During this period, toned milk prices increased from Rs 54 to Rs 60 per litre, while full cream milk prices rose from Rs 66 to Rs 72 per litre. On average, milk prices have increased by around 3% annually, whereas inflation has risen at nearly 5% a year. In real terms, this means milk prices have actually declined rather than increased.
The latest price hike was primarily driven by a sharp rise in input costs. Feed ingredient prices have gone up by 30-40% this year alone. Packaging costs have also increased by 30-40%, while labour and fuel expenses continue to rise. When production costs increase so significantly, a price revision becomes unavoidable.

-Around 80 million farmers in the country depend on milk for their livelihood. How much have they benefited from the price hike?
At present, farmers across India receive between Rs 35-40 per litre for cow milk with 3.5% fat content. Buffalo milk with 6.5% fat content is sold at around Rs 56-58 per litre. Full cream milk available in the market contains nearly 6% fat, and farmers receive roughly Rs 52-53 per litre for that milk.
In January 2023, cow milk prices were around Rs 34-35 per litre, while buffalo milk prices were close to Rs 50 per litre. This means that over the last three-and-a-half years, buffalo milk prices have increased by only Rs 3-4 per litre, while cow milk prices have risen by just Rs 2-3 per litre.
During the same period, inflation increased by nearly 5%, consumer milk prices rose by around 3%, but farmers’ incomes grew by only 1.5-2%. In other words, the price farmers receive for milk has not increased in proportion to the sharp rise in their production costs.

-As you said, farmers are not getting price increases in line with inflation. Is this discouraging them?
Milk production largely depends on the quality of feed given to animals, including green fodder and concentrated feed. Feed alone accounts for nearly 70% of the total cost of milk production. If feed and other input costs continue to rise while farmers’ incomes do not increase proportionately, the natural response is to cut expenditure on animals. Earlier, farmers would reinvest their profits in purchasing new animals, but that trend is now weakening.
This has created a two-fold impact. On one hand, the productivity of existing animals declines because farmers reduce spending on nutrition and care. On the other hand, fresh investment in dairy farming slows down significantly. In particular, the number of large commercial dairy farms being established has started declining.
According to government estimates, India’s milk production in 2024-25 stood at around 247 million metric tonnes, reflecting growth of 3.3% over the previous year. In 2023-24, production was about 239 million metric tonnes, with growth of 3.8%. In contrast, the sector had recorded an average annual growth rate of nearly 5.5% over the previous decade. This means milk production growth has slowed by 30% to 40% in the last two to three years.
The core issue is that farmers’ earnings per litre are shrinking. Their costs are rising steadily, but milk prices are not increasing in the same proportion. In India, farmers remain the weakest economic stakeholders. Agriculture is not like a startup where investors can absorb losses for years. Farmers struggle to sustain their own households, yet they are expected to continue producing cheap milk. Such a model is not sustainable in the long run.

-Recently, fat prices have increased while SMP prices have remained relatively stable. As a result, ghee prices have risen for consumers. Milk prices usually increase during summer due to lower production, but this year the challenge appears more serious. What is your assessment?
Milk production generally declines during the summer months, while consumption rises. In India, nearly 15% to 20% of milk demand is met through reconstituted milk made using skimmed milk powder (SMP) and white butter.
At present, SMP prices in India are around Rs 300-320 per kg, almost the same level seen in 2023. In fact, prices had softened for some time before recovering recently. Fat prices, however, have increased sharply and are currently around Rs 600 per kg.
If SMP priced at Rs 320 per kg with 8.5% solids and fat costing Rs 600 per kg at 3-3.25% is used, the production cost of toned milk works out to nearly Rs 46 per litre, while the market selling price is around Rs 60 per litre. There are no procurement costs also. In my view, under the current market conditions, selling reconstituted milk remains a profitable business proposition.

-After the recent milk price hike, there may not be another increase soon. However, the government has raised petrol and diesel prices several times…
In my opinion, the latest milk price hike should have happened at least six months earlier. Rising fuel and packaging costs alone warranted another increase of around Rs 2 per litre. In effect, only about half of the required price correction has taken place. If we want the dairy sector to continue growing and farmers to sustain milk production, milk prices may need to rise by another Rs 2 to Rs 4 per litre.

-You mentioned that feed costs have risen sharply. Commercial dairy farms rely more on concentrated feed, while smaller farmers depend largely on traditional fodder. There are also concerns about fodder availability and livestock numbers, especially with forecasts of a weak monsoon this year. Will this further affect feed availability?
Certainly. India does not have adequate green fodder availability throughout the year. Even straw has become scarce and expensive, with prices now ranging between Rs 8 and Rs 10 per kg. In many situations, concentrated feed is becoming a more practical option.
At present, nearly 1.5 lakh tonnes of concentrated feed are sold every day, and demand is growing by 12% to 15% annually. Around 30% to 35% of feed ingredients consist of de-oiled rice bran (DRB). When the government imposed export restrictions on DRB, domestic prices remained stable. However, after exports resumed, DRB prices doubled.
Earlier, concentrated feed was available at Rs 20-22 per kg. Today, the price of DRB alone has reached Rs 20-22 per kg, significantly increasing the overall cost of cattle feed.

-After milk, are prices of value-added products like ice cream and flavoured milk also likely to rise?
A few years ago, I would have said that milk and curd themselves were the best value-added dairy products. But the market has changed significantly over the past few years.
Traditionally, cooperatives have been the market leaders in liquid milk sales. However, in most states, cooperative dairies require direct or indirect approval from state governments before increasing milk prices. As a result, cooperative brands are often unable to raise prices in line with rising costs or to pass better returns on to farmers. And when cooperatives are unable to increase prices, the private sector also finds it difficult to do so.
The private sector now believes that since milk prices in the liquid segment remain tightly controlled, margins will continue to shrink. Value-added products, however, are relatively free from such pricing pressures. That is why private dairy companies are increasingly focusing on products such as ice cream, flavoured milk, cheese and other value-added categories.
At the same time, because cooperative milk prices remain comparatively lower, demand for their liquid milk continues to rise, forcing them to prioritize regular milk supply. As a result, they are left with less milk for manufacturing value-added products. This imbalance is widening steadily. If controls on milk prices continue, the dairy industry could face serious structural challenges in the coming years.

-How do you assess the performance of the private and cooperative sectors in dairy?
India became the world’s largest milk producer because the cooperative sector created a strong institutional framework and established industry benchmarks. Verghese Kurien introduced transparent milk procurement and testing systems through Amul, models that were later adopted across the private dairy sector as well.
Today, India procures around 130 to 135 million litres of milk every day. Roughly half of this is handled by cooperatives and the remaining half by private companies. Both sectors are contributing to the growth of the dairy industry while operating on relatively thin margins and competing in a complementary manner.
For the long-term health of the dairy economy, it is important that the cooperative sector remains strong, while the private sector continues to expand alongside it. This balance helps maintain competition, improves efficiency and also pushes cooperatives to address their own shortcomings over time.

-Questions are often raised about milk production and consumption data. Some people say strict action against synthetic milk would benefit farmers. What is your view?
India consumes almost all the milk it produces domestically. The quantity of fake or synthetic milk occasionally highlighted in media reports is negligible, not even 0.001% of total milk production. Chemically manufactured milk cannot be used like normal milk. The moment it is used in tea, curd or sweets, the difference becomes immediately apparent. The issue is often exaggerated beyond its actual scale.
When Operation Flood was launched, India’s milk production stood at around 23-24 million metric tonnes. Over the next 25 years, production increased to nearly 72-73 million metric tonnes. During the following 25 years, output tripled again. Throughout this period, annual growth rates remained in the range of 5-5.5%.
There was a belief that if this pace continued, India, as a developed economy, could account for 40-45% of global milk production in the future. However, milk production growth has now slowed to around 3-4%.
Comprehensive data for the current year is still unavailable, and most of the existing information comes from the cooperative sector, as private companies do not publicly share procurement figures. If one looks at cooperative milk procurement over the past two to three years, annual growth has been limited to just 2-3%, effectively indicating that growth rates have nearly halved.
The reasons behind this slowdown need serious attention. Farmers are facing rising production costs while the prices they receive are not increasing proportionately. At the same time, they now have alternative livelihood opportunities. If dairy farming does not remain profitable, they will naturally shift to other sectors such as poultry, horticulture, small businesses or urban employment.
Today, a delivery worker in a city can earn Rs 800 to Rs 1,000 a day. In comparison, a farmer working full-time in the field often struggles to earn even Rs 25,000 to Rs 30,000 a month.

-What suggestions would you give to sustain growth in the dairy sector under current conditions?
India became the world’s largest milk producer because of the Anand Pattern, whose core principle was that 70-80% of the consumer price of milk should go directly to farmers. Today, the MRP of toned milk is around Rs 60 per litre, but farmers receive only Rs 35-38 per litre, which amounts to just 55-60% of the retail price. Even in full cream milk, the farmer’s share is only around 60-65%.
The first priority should be to narrow this gap. Whether in the cooperative or private sector, if farmers do not receive 70-80% of the consumer price, they will lose the incentive to expand production. Milk prices may need to rise, but the benefit of that increase must reach farmers instead of being absorbed entirely by intermediary costs.
Secondly, governments should avoid controlling milk prices. In several states, governments provide subsidies of Rs 5-6 per litre and then use that as a basis to regulate prices. In effect, they may offer a subsidy of Rs 6 while suppressing prices by Rs 8. This amounts to subsidising consumers at the expense of farmers.
Some states control milk prices even without offering subsidies. While India has a Consumer Affairs Ministry, there is no dedicated mechanism to ensure fair milk prices for farmers. Unlike crops, milk does not have an MSP system - nor is the dairy sector demanding one. What the industry wants is a free and market-driven pricing system.
Feed accounts for nearly 70% of dairy farmers’ production costs. Prices of de-oiled rice bran (DRB), a major feed ingredient, have risen sharply after export restrictions were lifted. The government should consider reimposing restrictions because farmers can no longer absorb such high feed costs. This issue requires urgent attention.

India has signed several free trade agreements. Dairy was kept out of FTAs with New Zealand and the EU, but dairy ingredients were included. How big a threat are such agreements for India’s dairy sector?
There are two major areas of concern. The first relates to dairy ingredients. Imports of skimmed milk powder, white butter and SNF are permitted for export-oriented production. For example, suppose Indian brands collectively export ghee worth around Rs 2,000 crore. At present, this ghee is produced using fat sourced from Indian cows and buffaloes. However, if imported fat from countries like New Zealand becomes cheaper, exporters may begin sourcing it from abroad instead of using domestic milk fat.
The second concern is the bulk import of infant milk food. These products contain milk powder, sugar and vitamins, and can potentially be diverted for multiple uses, including dairy whiteners. Therefore, authorities need to closely monitor whether such import provisions are being misused.