[Source: Reuters]

Buying milk is getting expensive in India and the price could soon hit an all-time high, forcing the world’s biggest producer to step up imports to boost supplies and ease cost of living pressures.

Farmers are wrestling with a rare double whammy: a lethal condition called lumpy skin disease in their cows and a drawdown in market-ready cattle stock after the coronavirus pandemic slowed breeding.

Milk prices have already jumped more than 15% to 56 rupees ($0.68) a litre over the past year – the fastest rise in a decade – making it difficult for the government to bring retail inflation below the central bank’s target.

The soaring prices of milk and other basic goods is expected to become a political issue heading into state elections later this year.

“Any upside risk coming from higher milk prices is going to pose an additional challenge,” said Upasna Bhardwaj, chief economist at India’s Kotak Mahindra Bank.

“Since milk has a weightage of 6.6% in the consumer price index, any spike could have a reasonable implication on headline inflation,” she said.

A 39% jump in exports of dairy products in 2022, followed by lower milk supplies, has already cut inventories of butter and skimmed milk powder (SMP) in India, even as rising incomes lift demand for protein-rich dairy products, a key source of calcium, vitamins and protein for a large vegetarian population.

Industry officials estimate demand for dairy products to rise 7% this year.

But milk production is likely to have risen just 1% in the fiscal year to March 2023, well below the average annual rate of 5.6% in the past decade, said a senior official of the government-backed National Dairy Development Board (NDDB). The official declined be named as he was not authorised to speak to the media.