Problem of plenty: Milk procurement hit, prices to dairy farmers drop 20%

A private dairy based in the NCR said the market was flush with SMP and prices had fallen to Rs 150 a kg or so in the domestic market, down by 30 per cent

With stocks of skimmed milk powder (SMP) expected to touch 200,000 tonnes by March, there is a problem of plenty in the Indian dairy scene.

Cooperatives are already flush with 20 per cent more milk this season but capacities to convert this into SMP are stretched. The result is that procurement prices to farmers have already dropped by 20 per cent on an average. 

Milk cooperatives have requested the government to buy SMP (as buffer stocking) or announce an export subsidy (as international commodity prices are not conducive for exports). If not handled well, it would affect milk production next season.The SMP stock in the country is estimated at Rs 16-20 billion.

R S Sodhi, managing director of Gujarat Cooperative Milk Marketing Federation (GCMMF), said, “We have asked for either export subsidy or the government to do buffer stocking of at least 20,000-30,000 tonnes of SMP to ease out the situation. 

This stock can be released during summer months (which is the lean season for procurement).” 

Cooperatives account for 40-60 per cent of the milk procured by the organised sector. 

In Rajasthan and Madhya Pradesh, cooperatives are getting 30 per cent more milk than the normal winter season. Sodhi said private players have completely stopped procuring, as they do not think it is commercially viable. Ghee prices have fallen to Rs 100 a tonne over the past month. 

An additional factor at present is the Karnataka government offering a subsidy to milk farmers of Rs 5 a litre. Karnataka Milk Federation (KMF) is collecting 7.2 million litres per day (mlpd) as against sales of 3.2 mlpd. It is thanks to this excess that KMF has entered the Chennai, Mumbai and Hyderabad markets with liquid milk. 

Last year, KMF paid Rs 23 a litre to the farmer but takes its own purchase price as Rs 18 a litre, the rest being government subsidy. And, operators elsewhere have to compete with KMF to sell but without the subsidy. 

“This is penalising farmers of other states. If another country dumps its products in India by selling below cost with subsidy from their government, we can object. Here is a classic example of dumping of milk & commodities in different states by KMF,” alleged the head of a leading private dairy in the south who did not wish to be named. 

Sodhi said KMF can sell SMP at Rs 50 a kg less compared to other players, because of the government subsidy, forcing other players to also sell at that price.

KMF is working to add a new SMP plant at Ramanagara, near Bengaluru. Its SMP stock has gone down from 16,500 tonnes last month to 15,000 tonnes at present. A senior official in KMF says they aim to dispose off the SMP inventory by June, banking on the state’s Ksheera Bhagya scheme that supplies milk powder to schoolchildren and has a monthly requirement of 3,000 tonnes. 

Private dairies and commodity players in the north and Maharashtra have heavily reduced their procurement of milk. A private dairy based in the National Capital Region (NCR) said the market was flush with SMP and prices had fallen to Rs 150 a kg or so in the domestic market, down by 30 per cent. 

On the other hand, the international price of Rs 115 a kg makes it unviable for export.

As of now, GCMMF is offering last year’s procurement price to farmers. In Andhra, too, prices are stable. 

However, in Uttar Pradesh, dominated by private dairies, the procurement by cooperatives has dropped from an earlier 900,000 litres a day, to 500,000 (lpd).