Amul cuts skimmed milk prices by 6-7% on weak domestic demand

Subdued global prices make exports unviable, outlook remains weak

Faced with a sharp decline in demand during the ongoing lean season, coupled with a sharp increase in supply, skimmed milk producers (SMP) have cut their product prices by six-seven per cent across all varieties.

The industry leader, the Gujarat Co-operative Milk Marketing Federation Ltd (GCMMF), which sells its products under the Amul brand, has revised its product prices by up to Rs 10 per kg. With this revision, SMP prices currently stand around Rs 220 per kg.

The SMP price cut indicates a sharp decline in demand from consumers. Normally, demand for SMP products remains robust during the festive season. However, the demand has remained lacklustre so far this season.

"We have cut maximum retail price (MRP) of skimmed milk powder by six-seven per cent across all varieties recently because of weak demand from consumers. SMP prices are likely to remain subdued in coming months due to the commencement of new milk supply season," said R S Sodhi, managing director, GCMMF.

Normally, the new season of milk supply begins in September and gradually intensifies to reach its peak in October and November. During this period, normally, dairy companies process their liquid milk to manufacture SMP for supply in the lean supply season of April and May.

The SMP price decline, however, is unlikely to impact farmers’ realisations for the supply of liquid milk as dairy companies are preparing to absorb a squeeze in margins from lower SMP prices.

"Dairy companies in Maharashtra have posted lower profit margins for June quarter due to increase in milk procurement prices. Milk prices, however, are unlikely to decline because of a cut in SMP prices," said Shirish Upadhyay, senior vice-president (strategic planning), Parag Milk Foods Ltd, the producer of Gowardhan brand milk and cheese.

An Edelweiss Securities report said that the average milk procurement price for Prabhat Dairy stood at Rs 27.1 for the April–June quarter of 2017, up by five per cent from the corresponding quarter last year and down by around five per cent from the previous sequential quarter.

Dairy producers, however, find exports difficult given that the prevailing prices in international markets are 20 per cent lower than domestic prices.