September 7, 2012

 

India's milk prices to rise despite high procurement

 

 

As India's milk procurement for dairies is rising, private milk powder exporters have reduced capacity due to excessive supply of skimmed milk.

 

Higher costs of fodder and animal feed are weighing heavy, and some dairy majors are considering a rise in milk prices.

 

While ban on exporting skimmed milk powder (SMP) has been lifted in June, low prices in the global market are acting as a deterrent for exporters.

 

Experts say India's industry has a skimmed milk powder inventory of about 1,50,000 tonnes. A senior official at MILKFED Punjab, the cooperative milk producers' federation in Punjab, said, "International export prices are not conducive to exports. The prevailing rate is INR135-140 (US$2.43-2.52) per kilogramme. This is quite low, compared with the input cost... He added, "Yet, we are not able to export the material at a stretch."

 

MILKFED processes about 9,00,000 litres of its popular brand, Verka, a day. In August, Verka's price was raised by INR1 (US$0.02) a litre in Punjab, Haryana and Himachal Pradesh.

 

Several dairies such as Mother Dairy and Amul, have seen a 15%-25% rise in milk procurement, as private SMP companies are operating below their capacity levels to clear inventories. Also, an increase of about 20% in fodder costs in the last few months, owing to a drought-like situation in various parts of the country, and the rising animal feed cost are exerting pressure on milk producers.

 

Mother Dairy, a prominent company in the National Capital Region (NCR), is reviewing the situation.

 

A Mother Dairy spokesperson said, " In NCR, which accounts for a significant portion of our sales, we have not carried out a price increase for the last twelve months. We have been absorbing various cost pushes. We will review the situation and take a decision soon." The company had last revised prices on September 11, 2011.

 

Experts said on an average, last year, milk federations and private companies increased milk prices by INR5-6 (US$0.09-0.11) a litre. The increase in prices led to farmers undertaking dairy farming, making it a remunerative business. As a result, every milk federation is recording a rise of 15%-25% in procurement. However, farmers feel "they should be paid more, owing to high fodder and feed costs," said Progressive Dairy Farmers Association President, Daljit Singh Sadarpura.

 

Amul, the largest company in the segment, is, however, in a comfortable position. "The domestic market is better than the export market (for us). We command brand premium. In the last one week, export prices have risen up to 7%. However, it still has a long way to go. I am optimistic about exports in the coming months," said R S Sodhi, managing director, Gujarat Cooperative Milk Marketing Federation, which markets the Amul brand of products. Amul is considered India's largest SMP exporter.

 

Sodhi said despite the rise in milk procurement, the Gujarat Cooperative Milk Marketing Federation didn't plan to raise milk prices. It had last raised prices in April. He added the availability of fodder had improved, owing to good rains in Gujarat last week.

 

A senior official of the Karnataka Milk Federation agreed. "Last year, there was scarcity of milk, and SMP prices in February 2011 stood at INR200 (US$3.60) a kilogramme. Due to the paucity of milk, several federations like those in Bihar, Orissa and Madhya Pradesh bought SMP…Now, SMP prices have come down drastically compared to last year. We have about 10,000 tonnes of SMP in our inventory. We floated the tender for sale thrice, but could not get attractive price. So, we cancelled it. With a ban on export, inventories piled up and every player wished to generate cash revenue by selling SMP. Even private players have stopped accepting milk, which has resulted in an increase of 15%-25% in milk procurement by state cooperatives and federations."

 

In Karnataka, milk cooperatives increased price across all categories in January. They don't have any immediate plan to raise prices this year, said a senior official of the Karnataka Milk Federation.