That Pakistan’s milk price control is hurting both its livestock animals and milk consumers was discussed earlier in this space. Few are aware that despite those price controls, milk in Pakistan is one of the most expensive in the world. (See Dairy trade-offs: price vs. milk quality May 29, 2019)
Prior to recent depreciation spree that PKR witnessed, the price of milk at farm gate prices in Pakistan was higher by about 35 to 50 percent compared to the likes of US and Brazil (post-depreciation analyses is not available). This is largely because feed cost in Pakistan is about 30-45 percent higher compared to peer economies. (See footnote)
Feed aka fodder is about 70 percent cost of milk. Consistent rupee depreciation and rise in crop support prices drives up the cost of milk, for both loose and packaged milk players. A rise in support of a crop raises the cost of feed directly if that crop or its by-products is used as fodder, and indirectly if it is not used as fodder because farmers switch to crops yielding higher returns rather than those used for feed.
Moreover, when global oil prices rise, the price of imported feed also increases because farmers shift their crops toward bio-diesel production, which by the way also jacks up the prices of skimmed or dry milk prices. Add to these the cost of medicines to treat and to prevent, and rising land rentals (in case of cattle farms near or in major urban centres), and other farm inputs required for breeding, clean-in-place and so forth.
Another reason why milk prices for urban consumers may be high is because farming centres are in the urban or peri-urban areas instead of rural areas. According Dr. Nazeer Kalhoro, a veterinarian, who holds an MBA and a Phd in virology, dairy farm centres should be in rural areas. His argument: raw material for dairy farm – the feed which is about 70 percent of the cost of milk – is produced in rural areas.
It appears that it is cheaper to transport milk from rural to urban areas instead of transporting animals and their feed from rural to urban. "If the cost of fodder at production level is Rs10 per kilogram, when it arrives in Karachi, its cost becomes Rs12 to Rs3 per kilogram (kg), Rs2-3 per kg being the cost of transport, freight, toll, loading unloading etc. On average a cow eats 8 kg of fodder to produce one litre of milk, which means the freight cost of fodder to produce 1 milk is at least about Rs16 (Two times eight).”
“In contrast, the cost of transportation of milk from rural to urban area under cold storage is about Rs1.5 to Rs2 rupees per litre,” says Kalhoro, who currently works at Sindh livestock department. He adds that the cost of labour, water and land needed for dairy farming is also cheap in rural areas compare to urban centres. If his calculations are correct, then by having dairy farms in urban/peri-urban areas, consumers are being provided costlier milk, while the rural economy is being hurt.
To be able to control milk prices without distorting the quality and quantity of milk and the incentives of players across the chain requires a DMG official to have detailed knowledge about crops, weather changes, medicine for treatment and prevention, feed types and their supply, quality of animals and animal breeding, farm management and the ever-changing trends in costs, prices and management practises thereof. And these are just the broad contours of dairy farming.
Ramadan is a time when many try to come closer to faith. One important part of faith that government officials and the public at large ought to reflect deeply on is that only God is all-knowing, all-seeing, and all-hearing. A government official or any other mortal is not, and therefore they should resist the temptation of fixing prices, which are function of so many factors beyond the knowledge and control of any single person or government body.
As humans, we can only hope that the laws of demand and supply work, in light of which there is a need to let market forces determine the supply of quality milk, where to encourage lower milk prices, it is paramount for the government, inter alia, facilitate the increase in milking yield of Pakistan’s dairy farms. What are some of the options to improve milking yields of farms? Stay tuned!
Note: These are consensus range of estimates according to various industry sources, such as Pakistan Business Council, USAID project reports, some academic studies, and channel checks with local loose and packaged milk industry. In the absence of detailed academic research (dairy is a largely ignored subject in academia & think tanks) relying on consensus range is a better approach instead of relying on a single source. Actual percentage difference varies from region to region within Pakistan, and fluctuates with seasonal swings as well, but on average milk in Pakistan is costlier than most countries in the world.