Maha milk muddle: Subsidies to bankrupt R N Bhaskar

For the past fortnight, Maharashtra’s milk producers have been staging protests on the roads. On several occasions, they highlighted their grievances by pouring out thousands of litres of milk onto the streets. Their clamour: we want the government to subsidise milk prices by Rs 10 a litre (https://www.freepressjournal.in/mumbai/relief-package-for-milk-producersin-the-pipeline).

The reason: the government insists that they pay farmers at least Rs 25 per litre for milk. Gujarat pays a lot more for cow’s milk, while for buffalo’s milk, the price could go up to Rs 50 a litre, depending on fat content. The milk producers (actually, distributors) say that they can pay only Rs 15 a litre. They want the difference as a subsidy.

Their demands, however, overlook a simple point. When Gujarat can afford to pay higher prices to farmers without any subsidy from the government, why can’t Maharashtra? Even private sector producers like Hatsun and Nestle do so without any government subsidy. Why should Maharashtra’s producers be given special treatment?

It is worth remembering that the late Dr. Verghese Kurien made the milk industry vibrant because he was opposed to all subsidies. He was convinced that the farmer ought to be self-sufficient. Subsidies, said Kurien, weaken farmers, not strengthen them. Market mechanisms make them stronger.

Kurien’s cornerstone, however, was that the farmer must be the biggest beneficiary of the milk produced. Thus, in Gujarat, a farmer gets over 80% of the market price of milk. In Maharashtra, he gets barely 50%.

This is even though the end price a customer pays is almost the same across India. As former Maharashtra state agriculture minister, Anil Bonde, admitted, “While a farmer is paid Rs 15 or Rs 16 per litre for milk today, consumers are still paying Rs 40 to 48 per litre. The difference of Rs 24 to 26 per litre is pocketed by both cooperative unions and private dairy companies.”

The fact is that Maharashtra’s milk distributors have a stranglehold over the farmers who produce milk. They have ensured that the milk cooperative movement—represented by the likes of NDDB and GCMMF(AMUL)—does not succeed in this state. The numbers show it (see table). That is why the share of milk procurement and milk marketing in Maharashtra is lower than in any region in India. In fact, milk marketing under the cooperative movement did reasonably well from 2000 to 2010. But then the state milk brand Mahanand got bushwhacked, and private producers (read distributors) took centre stage.

As these columns have pointed out earlier, subsidies distort the market. They promote the inefficient. That is why the milk subsidy being demanded is bad in principle and dangerous in precedent.

But it is possible that the state will buckle. The Rs 10 a litre subsidy for milk will mean an addition outgo of Rs 1,200 crore annually.

Clearly, the clout that sugar cooperative politicians wield is immense. Most of them belong to the NCP and Congress which is propping up the present government in power. Over the years they have ensured that the clout of the sugar cooperatives continues to increase. This has been at the cost of the rest of the farming community in the state, and even other regions beyond the Marathwada region. The biggest casualty has been the Vidarbha region which has been deprived of water and faces crippling economic growth.

Thus, despite water scarcity, this lobby has increased sugarcane output, as well as the area under sugarcane under cultivation over the last three decades. Not surprisingly, Maharashtra accounts for just 20% of its cultivable area being under irrigation, compared to 80% in neighbouring Madhya Pradesh and equally impressive numbers in Gujarat, Andhra Pradesh, and Karnataka.

Had the bureaucracy been independent, or the judiciary more willing, such a subsidy could have been blocked through three moves.

First, the courts could actually prohibit the state from granting this subsidy, as it would be iniquitous to other stakeholders in the state.

Second, they could ask the state to pass orders to impose a “counter-vailing” import duty of Rs 5 or more for milk coming from states like Karnataka, where too a subsidy is being paid. One state’s subsidy cannot be allowed to ruin the economics of another state.

Third, the courts could compel it to ask sugar cooperatives to restate their books by showing the profits made by their privately held distilleries, pharma companies and dairy businesses. That would immediately make the sugar cooperatives profitable, obviating the need for subsidies. Else, the courts could mandate a higher selling price for molasses, so that the profits remain on the books of the cooperatives.

But the fact is that the present government is vulnerable.