A rise in the price of value added products such as cheese, butter and skimmed milk powder (SMP) is set to help dairy companies’ revenue via higher export in the next two quarters.
Data compiled by the Food and Agricultural Organisation of the United Nations show its Dairy Price Index at 215.2 points in May, up 11 points (5.5 per cent) from April and the fourth month in a row for the index rising, primarily due to tight supplies from New Zealand. The index value was 11.5 per cent higher than in May 2017, though 22 per cent below the peak in February 2014.
While prices of dairy products remained almost stagnant in India, these "have surged in the international markets of late, due to lower supply. Indian companies can boost shipments to fetch better realisation”, says R S Sodhi, managing director, Gujarat Co-operative Milk Marketing Federation, producer of the Amul brand.
White butter, for example, is Rs 250 a kg here and Rs 380-390 a kg ($5,850 a tonne) in international markets). Cheese prices abroad are quoted at $6,800 a tonne (Rs 457 a kg), compared to less than Rs 400 a kg in India.
However, it is the other way round for SMP, the most popular dairy product in the export segment. It is Rs 120-125 a kg in the international market, as against Rs 140 a kg here.
“Indian dairy exporters have created a trust and confidence in the global markets for their products, which is set to yield premiums even for SMP over their export from other competing countries. India exports its dairy products primarily to the Middle East and Russia, beside other countries,” said Sodhi (another destination is America).
“Milk procurement prices corrected in the March quarter from their peak in the first quarter (April-June. These are expected to stabilise at lower levels for next three to four months, considering lower fodder prices and a decline in global SMP prices. We expect lower input prices to aid margin expansion,” said Aniruddha Joshi, an analyst with ICICI Securities while referring to Parag Milks’ performance.
Milk prices have declined 25.5 per cent and are expected to remain benign, given SMP inventory and expectation of a normal monsoon. SMP’s price in the March quarter was down 23.6 per cent from a year before.