Milk Industry in India

News: One of India’s largest dairy cooperative societies has just raised its milk prices for consumers by Rs 2/litre and this has become national news. Many in the media are debating how this will push up Consumer Price Index causing inflationary pressures, which may soon force the RBI to change its “accommodative stance” on monetary policy.


  • Milk is an important case study for our overall agriculture sector. Milk is our biggest agri-commodity in terms of value, greater than paddy (rice), wheat, and sugarcane combined.
  • India is the largest producer of milk in the world with an estimated production of about 208 million tonnes in 2020-21, way above its closest competitor, the US, whose milk production hovers around 100 million tonnes.
  • Our dairy sector is dominated by smallholders with an average herd size of 4-5 animals. There is no minimum support price (MSP) for milk. It is more like a contract between the company and the farmers.

Milk prices:

  • The price of milk is largely determined by the overall forces of demand and supply.
  • Increasing costs of production enter through the supply side, but the demand side cannot be ignored.
  • As a result of all this, the overall growth in the dairy sector for the last 20 years has been between 4-5 per cent per annum, and lately, it has accelerated to even 6 per cent.
  • For dairy farmers, this increase in milk prices is not commensurate to the increase in their feed and other costs, and they feel that their margins are getting squeezed. They also feel that this price still does not count their logistics cost.

Operation Flood:

  • It is well known that “Operation Flood” (OF) that started in the 1970s transformed this sector. The institutional innovation of a cooperative model, steered by Verghese Kurien, changed the structure of this sector.
  • However, even after five decades, cooperatives processed only 10 per cent of the overall milk production.
  • India needed the double-engine force of the organised private sector to process another 10 per cent.
  • The doors for the private sector were opened partially with the 1991 reforms, but fully in 2002-03 under the leadership of Vajpayee, when the dairy sector was completely de-licenced.


  • Many start-ups “dairypreneurs” have come in promising a farm-to-home experience of milk. There is one company that delivers fresh milk at the consumer’s doorstep and gives quality testing kits at home. These have digitized cattle health, milk production, milk procurement, milk testing, and cold chain management.


  • Sexed semen technology helps in predetermining the sex of offspring by sorting X and Y chromosomes from the natural sperm mix. This can solve the problem of unwanted bulls on Indian roads. Although the current cost of sexed sorted semen is high, Maharashtra has taken a bold step in subsidizing it for artificial insemination.

Way forward

  • The upshot of all this is that let prices be determined by market forces, with marginal support from the government or cooperatives in times of extreme. The major focus should be on innovations to cut down costs, raise productivity, ensure food safety, and be globally competitive. That will help both farmers and consumers alike. The cooperatives did a great job during OF, and are still doing that, but the private sector entering this sector in a big way has opened the gates of creativity and competition.