Who moved our ghee? It has all from store shelves but vanished

GCMMF’s failure to raise milk prices in line with cattle-feed prices has hit our dairy farmers and caused market shortages.

- B.M. Vyas, Manu Kaushik

There has been a ghee shortage in the market since Diwali season 2022. Top brands have been running out of stock at shop shelves and on online portals regularly. With the lean season in milk underway (April to August or the summer-monsoon months when production of milk falls in relation to demand), it seems that this demand-supply mismatch of ghee will persist for a couple of months. Delve deeper, and one finds not just a milk-fat shortage, but a milk shortfall. Post-2014, India has averaged a 6% growth rate in milk production annually. While actual data is not out yet, indications appear that this growth in 2022-23 has fallen to 1-2%.

At the heart of the matter is a rise in cattle-feed prices in the country without a commensurate increase in milk prices. This is making dairy farming unviable for dairy farmers and reducing growth in milk production.

Cattle-feed cost is an expense for dairy farmers, while milk prices multiplied by production is their income. An important value component of cattle feed is oil meal, which is the residue left after oil has been crushed out of oilseeds.

To understand inflation in oil meal prices, we can take inflation in vegetable oil prices as a proxy, as it’s a by-product of vegetable oil production. A comparison of the Food and Agriculture Organization (FAO) food price index for dairy and vegetable oils can give a picture of what has happened.

From 2005 to 2020, for nine years out of these 16, the dairy price index has been higher than the vegetable oil index by an average of 14 percentage points. For the remainder of seven years, the dairy price index has been lower by an average of 10 percentage points. Then in 2021 and 2022, the dairy price index was below the vegetable oil index by 28 and 24 points, respectively.