Understanding the data on flowing milk, booming agricultural output

Agriculture Ministry’s harvest estimates don’t square with drought conditions in several cases, raise serious questions of credibility.

We have had two consecutive drought years, yet India’s milk production, according to the Agriculture Ministry, has risen from 137.69 million tonnes (mt) in 2013-14 to 146.31 mt in 2014-15 and 160.35 mt in 2015-16. Never before has the country’s milk output grown at these rates — that too, in the face of back-to-back monsoon failures.

Sounds farfetched? Well, in bad rainfall years, farmers do rely more on milk sales to make up for lost income from their main crop. So, rather than plant cotton or groundnut, they may go in for short-duration fodder crops and put all their resources and energy into dairying. In the event, more milk could flow from the udders of their animals.

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There is a flip side to this, though. Farmers, even in normal times, accord priority in feeding to the buffaloes and cows already in milk. That tendency is exacerbated during droughts. Since pregnant animals and calves are the ones that bear the brunt of fodder deprivation, their reproduction-cum-lactation cycles get disrupted. Its impact on output will be, however, felt not immediately, but in the succeeding year.

Krishi Bhawan’s claim of record milk production growth in the first two years of the Narendra Modi government may, therefore, not be totally devoid of logic. The payback time for the 2014-15 and 2015-16 droughts could, ironically, be in 2016-17, which looks to be a very good monsoon year as of now.

The Agriculture Ministry’s output estimates are also seemingly supported by data on milk procurement by dairy cooperatives. These were up by 10.7% in 2014-15 and 11.5% in 2015-16, more than even the corresponding growth rates of 6.3% and 9.6% for milk production.

But connecting output to cooperative procurement can be highly misleading. Cooperatives procure hardly a tenth of the milk produced in India. Even out of their total average daily procurement of 421.67 lakh kg in 2015-16, nearly 60% was from three states — Gujarat, Karnataka and Maharashtra — that together produce less than a fifth of the country’s milk. On the other hand, we have Uttar Pradesh with an 18% share of national milk output, but contributing just 1% to overall cooperative procurement. The link between production and procurement at an all-India level is, thus, tenuous at best.

Moreover, farmers in any case resort to increased milk sales during droughts. But that, as already noted, has more to do with a drying up of regular crop income, and can happen even without production really going up. The accompanying chart shows that in 2012-13, which was a drought year, procurement by cooperatives registered a 16.7% jump, even with milk output being a mere 3.5% higher.

These apart, there is a more important reason for milk procurement by cooperatives shooting up in the last two years. Between 2013-14 and 2015-16, India’s milk powder exports collapsed from 1.3 lakh tonnes (valued at Rs 2,717.56 crore) to 15,905 tonnes (Rs 292.57 crore). It takes about 11.5 kg of milk to produce 1 kg of powder. A 1.1 lakh tonne reduction in powder exports would have been equivalent to a lowering of milk purchases by some 36 lakh kg per day. Since much of exports were being done by private dairies, their cutting back on procurement would have led to all this surplus milk flowing to the cooperatives.

Cooperatives dairies are actually in a bind today. While procurement has soared by double digits, the growth in their liquid milk marketing volumes was only 5.6% in 2014-15 and 3.8% in 2015-16 — reflective, perhaps, of the pressure on incomes and consumption in the wider economy, and also borne out by Amul or Mother Dairy not being able to raise retail prices as freely as before.

But both collapse of exports and sluggish growth in milk sales point to a problem of demand rather than supply. Production may well have increased, but certainly not by 14 mt in 2015-16 alone. That claim is difficult to reconcile with a scenario of extreme water and fodder scarcity across much of rural India in the last two years, forcing farmers to even sell their cattle at distress prices.

It isn’t milk alone. Question are being raised over even the Agriculture Ministry’s estimates of wheat production, which, for 2015-16, has been pegged at 94.04 mt, as against the previous year’s 86.53 mt. A 7.5 mt output increase — when procurement by government agencies is down by 5.2 mt and open market wheat prices are ruling 14%-15% higher compared to last year at this time — has flummoxed market participants and grain analysts alike. The US Department of Agriculture has reckoned India’s wheat crop at 88 mt, with the private trade putting it even lower at 85-86 mt.

The same goes for soyabean, where Krishi Bhawan’s output estimate of 8.92 mt is much more than the USDA’s 7.38 mt and the Soyabean Processors’ Association of India’s 6.93 mt.

The near-term policy implications from official crop estimates being wide off the mark are obvious. When market signals are clearly indicating a domestic shortage of wheat, the Centre is still imposing a 25% duty on imports. And the only reason for it is the Agriculture Ministry maintaining that the country harvested a bumper crop of 94 mt-plus even under poor soil moisture conditions, aggravated by high temperatures and absence of winter rains.

But the more serious implications are on credibility. At a time when everybody, from Morgan Stanley’s Ruchir Sharma and former Finance Minister Yashwant Sinha to the US Department of State, is expressing doubts over India’s GDP growth numbers, overstating crop production only makes things worse

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