Due to an epidemic that has hit India’s cattle and the COVID-19 pandemic, along with a young and growing population, the world’s largest milk producer has end up having to import milk.
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India, the world’s largest milk producer, is in the midst of a supply crisis. This has led to rising prices and rising imports, which runs the risk of becoming a serious political controversy besides an economic issue. The Reserve Bank of India’s interest-rate setting committee said on Thursday that one of the things causing high inflation is milk prices.
The cow economy is in a difficult phase owing to a combination of factors. The supply chain of the dairy industry was disrupted by covid (and affected before that, to some extent). In the past six months, an epidemic has hit India’s cattle. This combination has caused supply constraints at a time when demand is expanding strongly.
Milk is a necessary good, so demand is relatively less price-sensitive. The consumption of milk and dairy products doesn’t change much unless prices change a lot or there’s drastic change in the life circumstances of consumers.
India has a young, growing population, which means a steady long-term increase in demand for milk and milk products. Per-capita consumption at 425 gm a day is higher than the global average of 320 gm. Over 80 million farmers contribute to the dairy industry, and India produces 23% of the world’s milk.
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In general, milk supply has increased by around 6% a year and this is in step with demand growth. Between 2013-14 and 2019-20, milk production grew from 138 million tonnes to 198 million tonnes, at a compound annual growth rate (CAGR) of just over 6%. Milk prices rose by about 3% a year through that period.
In 2020-21, milk production was at around 208 million tonnes but demand collapsed during the pandemic as life circumstances changed drastically. Lockdowns led to the closure of hotels, restaurants and sweetshops, and cancellation of weddings and so on. Hence, procurement prices also collapsed. This led to a chain of events that contributed to the crunch today. Dairy farmers cut back on herd sizes in 2020 and 2021. Short of cash, they bought less fodder. Calves and cows were underfed.
In 2022 and 2023, demand for dairy has bounced back as the economy has gradually reopened. But supply has not increased much because of the lack of investment during the covid years. In 2022-23, milk production was estimated at 223 million tonnes – almost the same as in 2021-22 (221 million tonnes).
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