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With prices of skimmed milk powder (SMP) softening in the international market, major dairy players plan to focus on the domestic market this year, which, in turn, is also likely to witness further easing in SMP prices owing to an over-supply. What is significant here is that weak SMP prices would keep the prices of liquid milk in check for the coming few quarters.
With exports of SMP slowing down, there would be an excess supply of milk in the market, which otherwise, would have been used to make SMP for exports. Industry insiders feel that this would result in stable milk prices in the coming months.
India produces 500,000-600,000 tonnes of SMP a year. Of this, 90,000-120,000 tonnes are exported, says R G Chandramogan, chairman and managing director of Hatsun Agro. Last year, India exported 120,000 tonnes; this year, however, exports might see a fall, dairy companies say.
Gujarat Cooperative Milk Marketing Federation (GCMMF), which owns and markets the Amul brand of milk and milk products and is a leading SMP exporter, had seen its exports treble to about Rs 530 crore, primarily due to selling milk powder on international auction platform Global Dairy Trade. R S Sodhi, managing director of GCMMF, said, “While the country had exported around 120,000 tonnes of SMP last year, this year exports will hardly stand at 30,000 tonnes.”
Last financial year, Amul had exported about 20,000 tonnes of SMP. Sodhi says this financial year, exports will be significantly lower.
SMP prices in the international market stand at about Rs 220 a kg, while prices in the domestic market are Rs 250-260 a kg. Sodhi says with supply increasing in the domestic market, prices will further drop. “By September, we expect prices in the domestic market to be about Rs 230 a kg. Two months ago, prices were about Rs 290 a kg,” he says.
Hatsun Agro, which focused on value-added products such as curd and ice creams last year, feels this year, it might focus on SMP sales due to the excess availability of milk in the domestic market. “We expect to sell around 18,000 tonnes of SMP in the local market this year,” Chandramogan said.
Devendra Shah, chairman and managing director of Maharashtra-based Parag Milk Foods, says, “Since the last two months, we are selling 80-90 per cent of our production in the local market. Our production is 1,800-2,000 tonnes a month.” He expects the trend to continue for at least another two quarters. Typically, SMP is required by food processing such as chocolates, ice cream; during lean months, it is also used for milk reconstitution.
A fall in SMP prices and a subsequent dip in exports will exert pressure on liquid milk prices in the domestic market. And, factors such as higher milk procurement and expectations of more correction in international prices in the future will also play a part.
Therefore, dairies feel prices of liquid milk will be under check, giving consumers a much needed respite from the spiralling inflation.
There is adequate milk availability in the domestic market, with dairies across regions reporting a 10-14 per cent rise in procurement, even in the lean summer months. This situation has also been boosted by the availability of excess milk, which would have otherwise gone into making SMP for export markets. Even if a delayed monsoon affects fodder prices, the increasing availability could offset the rise in input costs.
