High milk production weighs on product prices

With an estimated seven per cent increase in domestic milk production this year, availability of milk and dairy products has improved. The improved supply, driven by higher production, has led to a fall in domestic prices of dairy products like skimmed milk powder (SMP) and butter oil (ghee).

Prices of liquid milk that saw a series of increases in the past year have not come down. However, consumers can expect a more stable price, this year and the government can breathe easy, as milk has a high weightage of 4.37 per cent in the wholesale price index-based inflation.

R S Sodhi, managing director, Gujarat Cooperative Milk Marketing Federation, which sells milk and milk products under the Amul brand, said, “Farmers have got good prices for the past two-three years and they have worked towards expanding production. Compared to a milk production of 123 million tonnes (mt) last year, we expect production to be 130-132 mt.” He said price increases in liquid milk this year should not be as frequent as last year.

An improved supply on an extended winter season has exerted pressure on prices of SMP and butter oil.

“There has been a 20-25 per cent drop in prices of both, SMP and butter oil, since Diwali. Export of milk products is banned and domestic availability has improved. Therefore, the higher production is exerting pressure on product prices and milk procurement prices,” said Sandeep Aggrawal, director, SMC Foods, which sells SMP under the Madhusudan brand. The SMP is currently priced at Rs 160 a kg, while butter oil is around Rs 220 a kg. The industry has reduced the price of milk it procures from farmers to Rs 24 a litre from Rs 29 a litre.

R G Chandramogan, chairman and managing director of Chennai-based Hatsun Agro, said the export ban had left the industry with 100,000 tonnes of milk solid-not-fats and dairy cooperatives had imported 50,000 tonnes of SMP, adding to the improved domestic availability.

Global prices also crash
Prices of milk products have been falling internationally as well, due to high production in countries like New Zealand and the US, said Aggrawal.

“If we compare current SMP prices to last year’s rate in New Zealand, the biggest dairy product exporting nation, it points to a 20-per cent drop. A bumper produce in the US, where the price is prevailing lower than in countries like New Zealand, is exerting pressure on global prices,” he said.