S-E Asia becomes hot destination for SMP exports

Exporters to battle it out with competitors to increase share in the newer market

It’s a battle that India’s dairy players will be fighting with their international peers in the South-East Asian region. With local dairy industry unable to cater to the growing milk demand of this region, dairy players from across the globe have entered the fray.

Insiders maintained that with available surplus milk powder in India, skimmed milk powder (SMP) exports to South-East region may rise to over 10,000 tones from the present around 5000 tones.

“Across Asia, India is the only country with surplus milk. Above all we have the location advantage to cater to the South-East market. Also, price competitiveness is also there,” said R S Sodhi, managing director of Gujarat Cooperative Milk Marketing Federation (GCMMF), which sells milk products under Amul brand.

The milk consumption in S-E market is mainly driven by high birth rates, rising incomes, improving diets, growth in modern retailing, urbanization and country-wide school milk programmes. The competition among the international dairy players is getting intense as the six nations of Association of South East Asian Nations (ASEAN), Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam are increasingly depending on the imported dairy items.

A report from Rabobank noted that dairy trade flows into S-E region surpassed 1.6 million tonnes in 2012, equating to a 5.5 billion dollar export opportunity for producers. The region is one of the few remaining dairy battlegrounds, and the current boom in demand has triggered intense competition between international producers.

“We expect dairy consumption across ASEAN-6 to grow by 2.4% per year through to 2020. This creates a requirement for an extra 3 billion litres of milk which local players are ill-equipped to deliver," said Rabobank analyst Michael Harvey.

“Opening up of ban on milk powder exports is a good sign as we see around 7000-8000 tonnes of SMP exports every month. Farmers benefit from this as we get good price from the international market,” said Sodhi. Amul alone exported around Rs 100 crore worth of SMP in April-June period. The milk federation eyes Rs 300 crore exports this fiscal.

According to industry insiders, Indian SMP costs around $3450 per tonne, which was range from $2,800 to $3,200 a tonne in March. However, the competing nations, including Australia and New Zealand charge in the range of $3,550-3,650 per tonne. Stronger dollar against rupee further benefits the exporters.

“Prices are getting lucrative. When dollar was Rs 56, the price was worked out at Rs 193, now it is over Rs 207 a kg. This way already we have a benefit of Rs 14 per kg. This further benefits farmers too,” said Viney Mahajan, who is associated with a private dairy in North India.

Rabobank analysts also made it clear that outcompeting rival companies will not be enough to secure victory in this market however, exporters must also conquer a number of structural challenges such as food price inflation, protectionist policy and supply chain inefficiencies.

“South-East is a major market. Milk powder export is a commodity business, hence our advantage is our quality and price. However, despite having surplus milk production, we are still a marginal exporter. We export hardly 1per cent of our total production,” said R G Chandramogan, CMD, Hatsun Agro Products. The company exports SMP to some countries in the S-E region, he said.

India’s total milk powder exports are likely to touch 1,00,000 tonnes this year.