Milk thus procured is to be utilized in most efficient way in the production of different dairy products according to the consumer demand. The dairy plants have to look after the interests of milk producers as well as the consumers. It demands a rational pricing policy to meet the objectives of serving both these entities and at the same time to see that the plant’s own economic viability and growth prospects are not lost sight of.
Price is one of the most effective means of achieving organizational objectives.Pricing can effectively serve as an instrument of supply and demand management.It has a significant role to develop and influence the structure of any segment of the economy including dairying. Most marketed milk is a joint product of mixed farming. For successful purchase pricing it is necessary that the purchase price should be such that it attracts the inputs required for milk production such as labour and cultivable land for growing fodders. The sufficient conditions for success include the competitiveness of the purchase price i.e. its absolute value v/s other prices
offered, timing and reliability of payment.
The selling price for milk and milk products must be competitive with others selling prices, consistent with the objective of social justice, relative consumer preferences and techno-economics of dairying.
Determination of a pricing structure for milk has not only to be based on the demand-supply equilibrium but also on the compositional quality of milk. The market forces will determine the base price for milk. The dairy plants should decide what price is to be paid to the farmers on the basis of quality of milk. Most dairy plants have some kind of a purchase pricing policy, which has some kind of relationship to what the plants get from the sale of their milk and milk products. In the interest of the organized sector, the milk pricing system has to be such that it becomes instrumental in increasing milk production by ensuring lucrative returns to the milk producers.
A rational pricing structure should ensure that :
Price is one of the most effective means of achieving organizational objectives.Pricing can effectively serve as an instrument of supply and demand management.It has a significant role to develop and influence the structure of any segment of the economy including dairying. Most marketed milk is a joint product of mixed farming. For successful purchase pricing it is necessary that the purchase price should be such that it attracts the inputs required for milk production such as labour and cultivable land for growing fodders. The sufficient conditions for success include the competitiveness of the purchase price i.e. its absolute value v/s other prices
offered, timing and reliability of payment.
The selling price for milk and milk products must be competitive with others selling prices, consistent with the objective of social justice, relative consumer preferences and techno-economics of dairying.
Determination of a pricing structure for milk has not only to be based on the demand-supply equilibrium but also on the compositional quality of milk. The market forces will determine the base price for milk. The dairy plants should decide what price is to be paid to the farmers on the basis of quality of milk. Most dairy plants have some kind of a purchase pricing policy, which has some kind of relationship to what the plants get from the sale of their milk and milk products. In the interest of the organized sector, the milk pricing system has to be such that it becomes instrumental in increasing milk production by ensuring lucrative returns to the milk producers.
A rational pricing structure should ensure that :
- Milk production is encouraged.
- The farmers get a fair return.
- Producers should get the incentives to supply better quality and larger quantity of milk.
- It should ensure the maintenance of an even supply of milk throughout the year.
- Consumers should get wholesome milk at reasonable rates.
- An attractive margin of profit to processors of milk and milk products.
A faulty pricing policy can lead to a combination of the following undesirable effects:
- Encourage adulteration with water or with fat and solids not fat from non-milk sources.
- Discourage production of one kind of milk while encouraging the production of other kind.
- Encourage mixing of cow milk with buffalo milk or vice versa.
- Encourage malpractices in payment for milk.
The pricing systems that are operative in the country for milk procurement are of the following type:
i. Pricing on Fat Content
Under this system milk is paid on the basis of its fat content alone.
i. Pricing on Fat Content
Under this system milk is paid on the basis of its fat content alone.
- This system discourages adulteration with water or mixing cow and buffalo milk with a view to gain an economic advantage.
- This system involves relatively simple accounting.
- This system encourages partial skimming and adulteration with cheaper fats.
- Production of cow milk is discouraged, as milk is valued only on fat basis,completely disregarding the SNF contents. According to this system, cow milk containing 3.5% fat will be paid at half the rate for buffalo milk containing 7%fat, even though the solids-not-fat (SNF) content of both the milk is nearly the same.
ii. Pricing on the Species Source
Milk pricing is made on the consideration of the species from which milk is drawn i.e. cow or buffalo. Usually a minimum fat standard for the different types of milk is adopted for acceptance or rejection of the product. Milk that meets the minimum fat standards is usually paid a flat price without regard to its compositional quality.Such system provides no incentives for production of richer milk. The producers,therefore, under this system, would not get any extra payment for extra fat in their milk during lean season. Generally in the lean season milk production goes down while fat percentage goes up.
iii. Pricing on the basis of a Minimum Fat Percentage plus Premium for Fat
Under this system a minimum fat standard is laid and a base price is fixed for the minimum fat standard. Fat over and above the minimum standard is paid premium on pro-rata basis. It discourages the production of cow milk.
iv. Pricing on Total Milk Solids
This system is mostly adopted by traditional milk traders. Milk is paid on the basis of yield of Mawa or Khoa.
Milk pricing is made on the consideration of the species from which milk is drawn i.e. cow or buffalo. Usually a minimum fat standard for the different types of milk is adopted for acceptance or rejection of the product. Milk that meets the minimum fat standards is usually paid a flat price without regard to its compositional quality.Such system provides no incentives for production of richer milk. The producers,therefore, under this system, would not get any extra payment for extra fat in their milk during lean season. Generally in the lean season milk production goes down while fat percentage goes up.
iii. Pricing on the basis of a Minimum Fat Percentage plus Premium for Fat
Under this system a minimum fat standard is laid and a base price is fixed for the minimum fat standard. Fat over and above the minimum standard is paid premium on pro-rata basis. It discourages the production of cow milk.
iv. Pricing on Total Milk Solids
This system is mostly adopted by traditional milk traders. Milk is paid on the basis of yield of Mawa or Khoa.
- Fat & SNF are priced at the same level which in fact is not rational.
- This system discourages the production of high fat milk.
- It encourages partial skimming & adulteration of milk with cheaper non-milk- solids.
v. Two Axis Pricing of Milk
National Commission on Agriculture recommended that dairy industry should adopt two axis pricing policy for milk procurement as it is rationally based on evaluation of both fat and solids-not-fat contents of milk. According to the two-axis pricing policy, the price of milk is calculated by fixing a pre-determined rate for fat and solids-not-fat. In this system fat and SNF are, generally, given equal value and per kg. price for fat and SNF are fixed in that ratio at which these occur naturally i.e. round 2/3 of fat price per kg. for each kilogram of SNF. In actual practice incentive for higher than the minimum SNF and penalty for supplying lower grade of milk by way of deducting the amount at a higher rate otherwise payable for good quality milk is well specified.
This type of raw milk pricing automatically discourages adulteration. This system does not discriminate against the cow or the buffalo milk. To minimize the effect of seasonality on milk procurement seasonal price premium can be paid up to 30% of flush season rate during lean months as it will increase average plant utilization and reduce the cost of processing.
vi. Pricing of Milk Products for Sale
The sale price of milk and its products should be fixed in a manner that would enable the organized dairy industry to pay remunerative price to the milk producers and meet the cost of collection, processing and distribution of milk and milk products.The sale prices should also cover the cost of services rendered in connection with channellizing the inputs for milk production, keep a fair margin of profit and yet make the price of the commodities competitive.
In case of milk schemes sponsored by the Government, the consumer’s price is administered so as to keep it as low as possible. It becomes difficult to pay remunerative price to the producer and thereby induce more production and procurement. Commercial consideration of profit and loss should be the guiding policy to help and develop the dairy industry so that it becomes viable and commercially profitable. However, Govt. may have differential pricing of dual-price policy for milk distributed through milk supply schemes to render assistance to weaker sections of the community.
The only method for maintenance of the competitiveness of consumer price without reducing the remunerative price for producers is to keep marketing cost as low as possible. This can be done by attaining greater efficiency in procurement, processing and distribution of milk and milk products.
The Committee on Pricing of Milk set up by the Government of India detailed the criteria for a rational pricing policy. It recommended that a Milk Pricing Committee should be appointed at (a) each dairy plant, (b) in each state and (c) an inter-state authority should be set up to coordinate the activities of the dairy plants that collect milk from more than one state to fix the producer and consumer prices of milk from time to time. The Milk Pricing Committee of the state and dairy plants should be sensitive to the variations in the prices of various inputs for milk production and the benefits that the farmer can obtain so that milk production is not discouraged by the pricing structure. The committees should also keep in view the interests of the consumers and should critically examine the overhead charges for collection, processing and administration so that the gap between the producer and the consumer price is kept to the minimum.
National Commission on Agriculture recommended that dairy industry should adopt two axis pricing policy for milk procurement as it is rationally based on evaluation of both fat and solids-not-fat contents of milk. According to the two-axis pricing policy, the price of milk is calculated by fixing a pre-determined rate for fat and solids-not-fat. In this system fat and SNF are, generally, given equal value and per kg. price for fat and SNF are fixed in that ratio at which these occur naturally i.e. round 2/3 of fat price per kg. for each kilogram of SNF. In actual practice incentive for higher than the minimum SNF and penalty for supplying lower grade of milk by way of deducting the amount at a higher rate otherwise payable for good quality milk is well specified.
This type of raw milk pricing automatically discourages adulteration. This system does not discriminate against the cow or the buffalo milk. To minimize the effect of seasonality on milk procurement seasonal price premium can be paid up to 30% of flush season rate during lean months as it will increase average plant utilization and reduce the cost of processing.
vi. Pricing of Milk Products for Sale
The sale price of milk and its products should be fixed in a manner that would enable the organized dairy industry to pay remunerative price to the milk producers and meet the cost of collection, processing and distribution of milk and milk products.The sale prices should also cover the cost of services rendered in connection with channellizing the inputs for milk production, keep a fair margin of profit and yet make the price of the commodities competitive.
In case of milk schemes sponsored by the Government, the consumer’s price is administered so as to keep it as low as possible. It becomes difficult to pay remunerative price to the producer and thereby induce more production and procurement. Commercial consideration of profit and loss should be the guiding policy to help and develop the dairy industry so that it becomes viable and commercially profitable. However, Govt. may have differential pricing of dual-price policy for milk distributed through milk supply schemes to render assistance to weaker sections of the community.
The only method for maintenance of the competitiveness of consumer price without reducing the remunerative price for producers is to keep marketing cost as low as possible. This can be done by attaining greater efficiency in procurement, processing and distribution of milk and milk products.
The Committee on Pricing of Milk set up by the Government of India detailed the criteria for a rational pricing policy. It recommended that a Milk Pricing Committee should be appointed at (a) each dairy plant, (b) in each state and (c) an inter-state authority should be set up to coordinate the activities of the dairy plants that collect milk from more than one state to fix the producer and consumer prices of milk from time to time. The Milk Pricing Committee of the state and dairy plants should be sensitive to the variations in the prices of various inputs for milk production and the benefits that the farmer can obtain so that milk production is not discouraged by the pricing structure. The committees should also keep in view the interests of the consumers and should critically examine the overhead charges for collection, processing and administration so that the gap between the producer and the consumer price is kept to the minimum.
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