Consumers may get respite as milk prices unlikely to rise

Factors responsible: weak international prices of SMP, higher procurement, flush of milk in Europe

At a time when food inflation is stretching house-hold budgets, the common man may have some reason to cheer as milk prices are unlikely to go up further for the coming couple of quarters. A combination of factors is responsible to keep the price of the commodity under check; weak international prices of skimmed milk powder (SMP), coupled with higher milk procurement, plus an expectation of a further correction in international prices in the future thanks to flush of milk from Europe.

Dairies across regions unanimously claimed that milk prices are likely to remain stable and milk inflation this year would be under control. In words of R S Sodhi, managing director of India’s leading dairy cooperative, Gujarat Co-operative Milk Marketing Federation (GCMMF) which owns the Amul brand, “Milk and milk product prices would be very stable. Already prices of SMP in the international market are around Rs 220 a kg which is lower than the domestic prices of Rs 250-260 a kg now. Exports would not be much this season, as the Indian market offers better prices.”

He further forecast that SMP prices are likely to go down further in the domestic market, and by September, it would be hovering around Rs 230 a kg. In comparison, prices had touched Rs 300 a kg last year, and Indian dairies had exported around 100,000 to 120,000 tonnes of SMP in FY14. Jitendra Agarwal, director of North-based Bhole Baba Dairy Products that sells the Krishna brand of products, said, “There is a huge price gap between Europe, Oceania and India, with Indian products costlier by almost Rs 40-50 per kg, and this mars prospects for Indian exporters.”

Add to this, an increased availability of milk even during the lean summer months. From Rajasthan Co-operative Dairy Federation (which markets milk and milk products under the Saras brand) to the Karnataka Milk Federation (which owns the Nandini brand), dairies across the country said that milk availability is up in the range of 10-14 per cent. Pritam Singh, managing director of Rajasthan Cooperative Dairy Federation (RCDF) informed that procurement was up by about 20 per cent this year, even during the lean summer months it has been up by 10 per cent compared to last year. RCDF is processing 18.5 lakh litres per day (llpd) even during the lean season, while Karnataka Milk Federation (KMF) is processing 62.5 llpd at the moment.

Moreover, with the onset of monsoons, the flush season will begin soon. “The flush season for milk procurement starts beginning July and the same lasts till February. During the period. procurement prices during the flush season are not increased due to higher production of the milk. So, we can say that milk prices may not rise till the flush season ends,” said another top official of RCDF.

However, if the monsoons are delayed, there might be some impact on fodder prices. Dairies, nonetheless, feel that higher availability would offset the rise in fodder prices. Devendra Shah, chairman and managing director of Parag Milk Foods, said, “Even if monsoons are delayed and there is a crisis on the fodder front, the higher availability would not let the prices to go up.” Procurement is up thanks to the higher procurement prices paid to farmers in the last one year. Farmers are getting around 18 per cent higher price compared to last year, and in the last two to three months, dairies have raised procurement prices to ensure better availability.

On the other hand, come 2015 onwards, the milk quota (or dairy produce quota) in the European Union (EU) would be abolished, thereby paving way for more production and a further fall in international prices. According to the milk quota system that was introduced in 1984, each EU member state has a national quota which it distributes to its farmers, and whenever a state exceeds its quota, it has to pay a penalty to the EU. Sodhi explained, “Once this quota system is abolished in 2015, there would be a flush of milk from the EU, around 25-30 per cent more production, and this would further bring down prices in the international market.”

Industry insiders feel that low international prices would force dairies to focus on the domestic market, and hence the prices here would be stable thanks to enhanced availability.