Indian milk is being smuggled into Nepal in large quantities because of the higher prices here, traders said. As a result, there is a milk glut in the local market despite a drop in domestic production.

“The price of milk in Nepal is Rs8 to Rs10 higher per litre compared to India, and this has led to a massive inflow of contraband milk across the southern border,” said Prahlad Dahal, president of the Nepal Dairy Association.

The retail price of milk in India is around IRs57.15 per litre. In April, the average price increased by 12 percent due to a jump in the cost of cereals making cattle feed more expensive, Indian media reported.

In Nepal, the government raised the price of raw milk paid to farmers from Rs56.4 per litre to Rs65.5 in March. Dairy farmers had been complaining that they were not getting a reasonable rate for their products.

Subsequently, the private dairy association jacked up the retail price of milk by Rs14 per litre to Rs100. State-owned Dairy Development Corporation also increased the price of standard milk to Rs48.50 per half-litre, up Rs5.50.

"The sharp jump in the price of milk at a time when Nepalis were seeing their purchasing power fall because of inflation led to reduced consumption," Dahal said. "There is no shortage of milk in the market even though the lumpy skin disease has led to a drop in production by 50,000 litres daily."

More than 50,000 head of cattle have died from the lumpy skin disease that has spread to all 77 districts in the country, according to the Department of Livestock Services.

Dahal said 3.2 million tonnes of milk used to be shipped to market daily last year, but it was not enough to fulfil the country's requirement.

“We had a deficit of 300,000 litres daily during this season. But now the market is seeing a surplus of 300,000 litres of milk,” he said.

In May, the government was planning to lift import restrictions on fluid milk briefly for two months to avert possible shortages during the lean season. The ban was not lifted; a study report showed that the ban was not necessary, said officials at the Ministry of Agriculture and Livestock Development.

Last September too, the Agriculture Ministry lifted the import ban for a month to fulfil domestic demand. Traders had been permitted to import 120 tonnes of milk daily, but they were able to obtain only 800 tonnes in one month because of shortages in India, said an official.

“Despite the lean season and lumpy skin affecting production, there is abundant milk in the market. We suspect that this is due to the flow of Indian fluid milk into the Nepali market,” said an unnamed official of the Ministry of Agriculture and Livestock Development.

“Because there is more milk in the market than demand and consumption, we are conducting an inspection tour,” said the official. “We have received complaints that traders are bringing skimmed milk powder from India and converting it into fluid milk, so we will be doing a market study,” said the official.

The Agriculture Ministry has formed a high-level committee for the inspection, said the official. Two teams will leave from Narayangadh, one to Ilam and the other to Kanchanpur. The inspection will help to conduct further discussion and decision, the official said.

According to the Agriculture Ministry, the lumpy skin disease has mostly infected cows in the mid-hills, and there has been little impact in the Tarai region. Milk production has not declined in the Tarai while cows and buffalos in the mid-hills are producing less.

The rise in the price of milk has led to a fall in consumption in recent times, said government officials and traders.

Dairy Development Committee, which used to produce 120,000 litres of processed milk daily a few months ago is now making barely 70,000 litres because sales have fallen, said the official.

"Domestic milk traders submitted a memorandum to the government bodies concerned regarding the increased supply of contraband milk through southern border points," Dahal said.