Retail milk prices are expected to increase by 4-5% in the fiscal year 2024, according to Pushan Sharma, Director at Crisil. Sharma highlighted several factors contributing to the potential price hike. The dairy sector has faced challenges during the pandemic, including a decline in milk production due to lower calf birth resulting from disrupted artificial insemination caused by the unavailability of oxygen cylinders. The pandemic also led to increased fodder prices, impacting farmers’ ability to care for animals and resulting in lower milk productivity. As a result, dairy processors faced higher procurement prices for milk and passed on some of the increased costs to retail customers.
The profitability of dairy processors has been decreasing over the past few years, indicating their inability to fully transfer cost increases to consumers. These factors have contributed to significant price hikes in milk, and a further rise of 4-5% is expected in the coming year due to the under-recovery in costs over the previous year. Additionally, poor monsoon conditions in August and September, along with persistent or increasing fodder prices, may further contribute to the price increase.
Sharma also discussed the impact of recent floods and erratic monsoon patterns on kharif crops in northern India. Heavy rainfall in Punjab and Haryana led to the submergence of standing paddy crops, which may necessitate resowing once the situation normalizes. In Uttar Pradesh, maize and groundnut crops in some districts were reported to be washed away. Vegetable crops across the affected regions were also significantly damaged or destroyed. The monsoon distribution has been uneven, with some states experiencing deficits in rainfall, affecting sowing activities. The disrupted monsoon and the need for resowing are expected to disturb the crop calendar and potentially impact the productivity of cotton, pulses, and oilseeds. The rainfall during critical stages in August and September will be crucial for crop yield, but there are concerns about lower rainfall during these months due to the El Nino effect.
Regarding food prices, Sharma noted that there has been a sharp increase in the food basket over the past couple of years. The outlook for food prices depends on the monsoon’s performance and crop production. Pulses may experience price increases due to potential productivity losses caused by El Nino. Paddy prices are expected to remain firm due to lower Food Corporation of India (FCI) stock and higher minimum support prices. Onion prices are likely to rise as stocks are expected to be exhausted by mid-September.
While there are concerns about sudden changes in weather conditions and the potential impact of El Nino on rainfall in August and September, Sharma believes that the severity of the situation will not be severe, based on the normal rainfall forecast provided by the Indian Meteorological Department. Improved irrigation infrastructure compared to previous years reduces the risk to crop production. However, if El Nino becomes severe, there could still be a negative impact, as observed in 2014-15 and 2015-16 when food crop production decreased by 6-7%.
Sharma also discussed the factors behind the increase in edible oil imports, with palm oil and sunflower oil experiencing healthy demand and higher imports. Soybean oil imports from Brazil have increased, while imports from Argentina have declined due to lower output caused by drought-like conditions. Looking ahead, Sharma expects edible oil imports to remain high, driven by demand for palm and sunflower oil. Brazil is anticipated to maintain its share in India’s soybean oil imports, while Argentina’s share is expected to decline.
The rising global temperature poses challenges to agriculture crop productivity. Increased temperatures lead to higher metabolic rates of pests, resulting in increased crop damage. Farmers may need to apply more pesticides and insecticides to combat the effects of high temperatures. Rice prices have risen by 20-30% in the past three months, influenced by lower rice stocks and higher minimum support prices announced by the government.
Despite government interventions to control prices of key cereals and pulses, their impact has been limited. The quantity offloaded into the market is relatively small compared to overall production. Additionally, supply chain issues, such as the Russia-Ukraine crisis, Indonesia’s temporary ban on palm oil exports, and labor shortages in Malaysia affecting palm oil production, have hampered price control efforts.
Overall, the dairy sector and food prices are expected to face challenges in the coming months due to various factors such as monsoon conditions, rising temperatures, and global supply chain disruptions.
