Dairies cut milk procurement price by 11% in two months on bumper supply

Benefits not to be passed to consumers, as companies seek to compensate Rs 30/kg loss in SMP making

Dairies have cut milk procurement prices by 11 per cent over the past two months following bumper arrivals from farmers during the ongoing peak supply season.

Strategically, dairies have reduced milk procurement prices by Rs 3 a litre in three equal phases to offer it currently at Rs 24 a litre. The first cut of one rupee a litre was reported in around the first week of August when all the milk farmers in Maharashtra were demanding farm loan waivers. Thereafter, a second one-rupee price cut was announced in early September. Dairies reported a third cut of similar amount on Dussera.

Anticipating the price cut to be a short-term phenomenon and probably the last such attempt during the current season, dairies are in no mood to pass on this price benefit to consumers. Ironically, dairies are looking to earn profits at the cost of farmers as consumers continued to pay Rs 44-48 for a litre of milk despite cuts in farmers' realisation.

"There has been a Rs 3 a litre decline in milk procurement prices over the last two months due to bumper supply. While another price cut looks grim, there is no room for a recovery in milk prices till March 2018," said Sarang Nirmal, Chairman, Prabhat Group of Industries, the producer of 'Prabhat' brand dairy products.

Normally, the peak cow milk supply season begins late- August or early-September. By the time cow milk supply normalises by late-October, buffalo milk supply picks up. This means, the peak milk supply season begins in August and continues till March.

Prabhat Dairy launched its new corporate identity on Tuesday and set a target to achieve the turnover of Rs 2,000 crore by 2020, up 10 per cent on annualised basis from the current level (FY2016-17) of Rs 1,500 crore. The company has also raised its revised milk procurement target of 1.4 million litres a day by 2020, from the level of one million litres now. This is hopes to achieve with the same number of farmers and milking animals. Prabhat plans to focus on educating farmers on yield enhancement and consequent increase in their revenues.

"Dairies have paid to milk farmers the highest rate of Rs 28 a litre early this year. So, the milk price benefit would be retained with dairies to compensate the fall in prices of skimmed milk powder (SMP)," said Nirmal.

Interestingly, SMP prices have declined to Rs 190-200 a kg which, according to dairy sources, translates into a loss of around Rs 30 a kg for its producers. Industry sources estimate the cost of SMP production at Rs 230 a kg.

"It (milk procurement price cut) would average out for dairies with improvement in margins in milk procurement and loss in SMP production. During summer season when milk supply remains slow, dairies pay high price to farmers. There will be no exorbitant margin benefit for dairies," said Shirish Upadhyay, Consultant, Parag Milk Foods Ltd, the producer of Gowardhan brand milk and cheese.

Milk farmers, meanwhile, are satisfied with a decline in their income due to cheap fodder prices following sub-normal monsoon this season.