Determinants of milk price in India

Abstract

Milk market in India is in a demand-led growth phase due to increasing income levels and lifting of ban on export of skim milk powder. This has resulted in an unprecedented and continual rise in domestic milk price causing anxiety to consumers. It has also become a major concern for policy makers dealing with food inflation as milk forms an integral part of Indian diet. Studying this price rise is crucial because the two long-term supply side determinants of milk which are female bovine animal population and milk production per animal are exhibiting reversal in growth trend, since 2007. This paper identifies the determinants of milk price on the supply and demand side. Using Error Correction Model on monthly time-series data, we find that skim milk powder, butter and per capita income have significant influence on milk price in the long and short-term. Price of beef is found to have a significant long-term influence. The paper concludes by suggesting a few policy areas that require attention to augment the much needed growth in milk supply.