The impact of demonetisation on the dairy sector..

One just came across this press release from Ministry of Agriculture. It talks about the status of dairy farmers post demonetisation.

Consequent upon the Central Governments decisions of demonetization, certain unintended impacts have been observed especially in the sectors thriving upon sheer cash transactions. In this regard, non-availability of funds to the co-operative banks for making payments to Milk producers/farmers by dairy co-operative against the milk supplied by them came to the notice of the Government.

Responding promptly to the prevailing situation of reported payment problems, the Union Minister of Agriculture and Farmers Welfare, Shri Radha Mohan Singh has regularly reviewed and directed to take appropriate action to alleviate the problems. Meetings with Mother Dairy, Gujarat Cooperative Milk Marketing Fed (GCMMF) /Amul, Delhi Milk Scheme and other State Co-operative Dairy Federations are taken at regular intervals.

In order to take stock of the prevailing situation, the Secretary Animal Husbandry, Dairying and Fisheries, Shri Devendra Chaudhry has accordingly convened a series of meetings and initiated actions for streamlining the payment system to Milk producers and even sale of milk to consumers through cashless transactions primarily.

GCMMF/Amul has been specifically directed to ensure 100% milk producers accounts to be opened by 30th December, 2016. Similarly, other co-operatives have been directed to ensure the opening of 100% accounts of milk producers/farmers by 30th January, 2017.

Specific instructions have been issued to all the agencies such as National Dairy Development Board, Mother Dairy, Delhi Milk Scheme and all state Dairy co-operative federations for ensuring direct payment to milk producer’s bank account at the earliest. Low penetration of nationalized banks and co-operative bank accounts in rural areas need adequate financial support with appropriate safe guards. This department vides D.O. letters dated 06.12.2016 have taken up the matter with the Department of Economic Affairs and Reserve Bank of India to provide necessary funding support to the cooperative banks in rural areas with appropriate safeguard to protect the interest of milk producers and for timely payment of the milk supplied by them.

….

Using the window of opportunity opened by the demonetization decision, it is high time to accelerate the opening of bank accounts of all those unbanked milk producers to make it cashless and digital sooner than later. Eventually, transparency saving habits, financial enclosure etc. would be benefiting milk producer in multiple ways.

One was told that demonetisation would lead to unearthing black money like never before. This is the principal purpose of demonetisation as well.

With no such signs, it has moved very conveniently to digital payments. A few years ago, it announced that nearly all the households have a bank account via the Jan Dhan account but each time we are told so many people have been brought under banking via some other scheme. To use demonetisation to usher digital payments is just amazing.

Then it gives us some useful data:

It is to be noted that there are 1.70 lakh Dairy Co-operative Societies (DCS) at village level having 1.6 crore milk producers affiliated with 218 milk unions. About 850 lakh litres per day Milk is procured totally, of which co-operative sector procures about  425 lakh litres per day and about 425 lakh litres per day is procured by private sector. The value of the milk procured by Village level DCS is to the tune of rupees 120 crore per day. For weekly and 10 days payment cycle the substantive amount is to be disbursed to lakhs of milk producers spread over varied geographical areas.

Then it just randomly picks data of a week before demonetisation and 70 days after demonetisation to show both banking inclusion and digital payments have risen:

Participating agencies i.e

NDDB Dairy Services and 23 State Milk Federations

No of Farmers (Nos in Lakh) Details of payment done (amount Rs in Crore)
Total with bank account without  bank account % farmers having bank A/c Total through Bank accounts through Cash

% cashless Transaction

Pre- Demonetization (1- 8th Nov 2016)

31.64 15.59 16.05 49.27 % ₹ 215.23 ₹ 51.28 ₹ 153.77

23.82 %

Post-Demonetization (9th Nov 2016 to 18 Jan 2017)

88.99 56.43 32.56 63.42 % ₹ 1,146.60 ₹ 828.39 ₹ 318.21

72.25 %

The above table shows that:-

  1. The percentage of farmers with bank accounts has increased from 49.27% to 63.42%.
  2. The cashless transaction to farmers after demonetization has increased from 23.82% to 72.25%.
  3. Due to close follow up, now only 27.75% farmers are being paid through cash, balance through bank accounts. Further that, the sale of milk has gone up by 2.81% in December 2016 as compared to December 2015 and the overall sale of milk from April- Dec 2016 has gone up to  328.91 lakh litres per day as compared to 321.43 lakh litres per day in April- Dec 2015.

It is evident from the above facts that situation regarding making cashless payment to the farmers has considerably improved over last two months and there is no negative impact of demonetization.

Hmmm. Couple of points:

  • Firstly, in order to show demonetisation has succeeded we should be told how much black money was received from dairy sector.
  • Secondly, digital payments will obviously rise if cash is not available. What needs to be seen whether the same flow continues as cash comes back to the system.
  • Thirdly, it is the third point on sales which is more important. The impact of demonetisation should be seen from sales figures of milk. The government reports it has risen but is inconclusive really. We need monthly data for a couple of years to see the trend, seasonality and so on. Statistics always hides more than it reveals.
  • Moreover, milk is a necessity in India for most households and people will buy it in whatever way possible. Most milk sales are on credit purposes anyways with people settling their transactions at the end of the month and so on. There is a large possibility that people would have extended the credit period as well.

These pre-demon and post-demon studies are going to absorb us for quite sometime to come in future..

 

 

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One Response to “The impact of demonetisation on the dairy sector..”

  1. Vikas Says:

    did not understand the point on credit. payments made in the predemon vs postdemon period would have the same number of txns being on credit, the base being the same, the % split shows an increase in the cashless transaction share, right?

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