The Hindu Business Line : Milk procurement price hike `hurting' Aavin

WHAT happens when the raw material price goes up without any increase in product price - the producer gains and the seller loses. When this happens in a co-operative, where both parties are partners, both lose.

According to sources in the know, this is what Aavin, the Tamil Nadu Cooperative Milk Producers Federation, is facing. It is losing money because the Tamil Nadu Government hiked the milk procurement price of milk by Re 1 a litre without increasing the selling price.

Aavin procures more than 20 lakh litres of milk a day, and the hike means an additional expenditure of Rs 20 lakh each day without a corresponding increase in income. There is no way that the co-operative can sustain this price for an extended period, say sources who did not want to be named.

It is stretched to capacity on funds and infrastructure, both of which are being tested to the limit. It may even have to approach the Government for subsidy support, sources said.

Aavin being a market leader, its prices are a benchmark for the industry. So the unbalanced price hike has churned the milk market in the State. The hike comes at a time when there is a glut in the market, when open market prices should have dropped. Now farmers with surplus milk are knocking on Aavin's door, and it is facing arrivals of close to 23 lakh litres a day.

An added impact is that cost of milk in Tamil Nadu has increased for the marketers while for those in neighbouring States it is lower. This means that milk from Andhra Pradesh with better margins, will start flowing into the market here. Some of the leading brands based in Andhra Pradesh, which sell over 6 lakh litres a day, could well see their sales double if the trend continues. Tamil Nadu sells about 3 lakh litres milk to Kerala and Karnataka, and this too could be affected, say industry experts.

Though farmers are initially gaining, it will not be long before arrears of payment to farmers start building up, as it happened a few years back - Aavin is still paying off those arrears. It may even have to declare a `milk holiday,' which in trade terms means stop buying milk.

Last year, Aavin made a profit of over Rs 15 crore thanks to cost conservation and market developments that saw a steep increase in milk powder prices. Some of the income was used to pay off the arrears due to the farmers, while a part of it was earmarked for modernisation. But now the modernisation work has taken a back seat because of an expenditure that directly affects its competitiveness, the sources said.

Aavin is now selling the surplus milk to Mother Dairy, Delhi, with which it has entered into a contract.

More Stories on : Dairy & Dairy Products | Tamil Nadu

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