Come October and major milk producers are expected to trim procurement from farmers or stop it completely because of excess stocks of skimmed milk powder (SMP).
Usually, purchase of milk increases manifold from October because of abundant supplies. Milk is procured by cooperatives and private milk companies to meet demand and to convert it into powder to be used during the lean season, starting from April, when supply drops.
This year, however, most private dairies and some cooperatives said they would not be able to procure much fresh milk or might even have to stop procurement as their operating liquidity is blocked in inventories because of abundant stocks of SMP lying with them.
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According to industry officials, the country has around 1,28,000 tonnes of SMP stocks as on date, while the annual demand is around 88,000 tonnes, a surplus of around 40,000 tonnes. In other words, the country’s requirement of SMP is already available with milk companies before even the main procurement season has started.
One kg of SMP is made from 11 litres of fresh milk.
“In such a situation, there won’t be any buyer in the market, because of which farmers would be forced to sell their produce at lower rate. This will leave them with less cash for purchasing feed or for upkeep of animals,” said Kuldeep Saluja, managing director of Sterling Agro Industries Ltd, makers of the Nova brand of milk and milk products.
He said some big milk procurers have started slashing purchase price of milk from farmers and more will follow suit. “The current purchase price of milk is Rs 27 a kg and it is expected to drop to almost Rs 24-25 a kg because of abundant supplies,” Saluja said.
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As R G Chandramogan, managing director of Hatsun Agro Products Ltd, said, the problem started after government agencies imported almost 50,000 tonnes of SMP in the last few years to tide over a domestic scarcity that never really existed. “The SMP was imported to ensure adequate supplies. But in reality there was no such shortage,” said Chandramogan, managing director of a large listed company that procures 0.75 million tonnes of milk annually.
Some analysts doubt the official figures on shortage of milk production. Official figures showed that milk demand has been growing at six per cent per annum, while the supply is rising by only four per cent. As such, the country should have had a shortage of around 13 million tonnes in the last five years, given the fact that milk production in 2011-2012 was around 130 million tonnes.
As such, the country should have imported around 13 million tonnes of milk in these five years, but the maximum import in any given year has not been more than 50,000 tonnes or 0.33 per cent of production. This means that there is some discrepancy in shortage figures, they said. Given that milk in north India is primarily sourced from buffaloes, industry officials said the problem is expected to be more acute in north India than in south.
“Unless the government immediately announces an one-time export subsidy of Rs 30 per kg, milk farmers will have no other option but to send their animals for slaughter as purchases will drop,” Saluja of Sterling Agro said.
However, there are different voices within the industry.
R S Dixit, chairman and managing director of Gopaljee Ananda, said it was not unusual for milk prices to fall during the flush season because of increase in supplies. However, there is little chance of even that happening this year as fodder cost and transportation charges have gone up. As such, farmers won’t be selling at low rates.
Meanwhile, the government has floated the idea of creating buffer stocks of SMP to absorb excess stocks for use in times of scarcity and also to creating domestic demand for milk through use of SMP in social security programmes. The issue also figured in a recent high-level inter-ministerial meeting on food inflation.