Store or share? Dairies look for best options to dispose of surplus milk

Distributing surplus milk through the PDS mechanism for the poor and vulnerable is one suggestion.

As the milk and butter stocks in the country swell ahead of a new flush season when supplies are usually good, industry players and experts have zeroed in on broadly three main options to absorb the surplus.

While the cooperative dairy sector along with some big private players are in favour of a 20 per cent export incentive under the revamped Merchandise Exports from India Scheme (MEIS) to push out the surplus, small private dairies are in favour of creating a buffer stock of milk from the surplus so that it can be liquidated as and when the need arises.

The third option being suggested is distributing the surplus milk through the PDS mechanism for the poor and vulnerable, which will be of great help in this crisis time.

According to industry sources, Indian cooperative milk unions were holding around 170,000 tonnes of skimmed milk powder (SMP) with them in July end, which is around 62 per cent more than the same period last. They are holding around 104,000 tonnes of butter with them which is around 40.50 per cent more than the same period last year and 22,000 tonnes of ghee which is 47 per cent more than the same period last year.

The surplus was accumulated during the Covid-19 lockdown due to a sharp drop in demand, and must have gone up by now as procurement continues. Demand hasn’t yet come back to normal, though it is better than what it was a few months back. 

This could have a serious impact on milk procurement prices in the coming flush season that starts in the next few weeks when conventionally supplies increase. 

Options to liquidate the surplus

Several industry players dismiss the idea of creating a decentralised buffer stock at this juncture because they argue that first and foremost skimmed milk powder (SMP) and white butter cannot be stored for a longer period due to low shelf life and it would result in huge losses and wastages.

Secondly, creating such a buffer requires high storage and overhead costs since white butter has to be stored in deep freezers at -18 degrees Celsius which is very expensive and not all can afford it. They argue that a decentralized buffer stock of 50,000 tonnes of SMP and 15,000 tonnes of white butter would require a grant in assistance of around Rs 136 crore every year to be provided to the cooperatives and diaries. This has to be provided every year if the buffer needs to be maintained on a perpetual basis.

Then, there are problems of logistics in transporting the commodities to the location of storage and while disposing it to the buyers.

“In case of the continuous flush season for a year or more (which is the likely scenario) the milk buffer will need to be reprocessed to increase shelf life which will lead to the additional financial burden on the government,”  said a senior official from a leading dairy cooperative, who is opposed to the idea.

He said, therefore, according to him a better option is to liquidate the stocks by exporting rather than continue to hold within the country by way of a decentralized buffer.

Though, all do not subscribe to the view.

“To overcome this supply glut, NDDB should create a surplus reserve of the skimmed milk powder that can be strategically used when the demand arises. Also, another viable option that can be explored is providing 20 per cent subsidy for exports under the Merchandise Exports from India (MEIS) Scheme,”  said a spokesperson of Hatsun Agro Products Ltd, one of the country’s leading private sector dairy companies.

Atul Mehra, Chairman of Tasty Dairy Specialties Ltd said the incentives for exports will help but the quality of India’s product must meet the international customers’ price and quality expectations. He added that creating a buffer stock of SMP and butter is a viable option and should be implemented, in fact, the participation of the private sector too should be ensured in this scheme.

Mehra also seemed to favour the milk distribution through PDS.

“Considering that milk products are a source of nutrition, distributing it through various schemes of mid-day meals, the PDS system will result in a win-win situation for all,” he said.

Venkatarmani Santhanam, Vice President of Gyan Dairy, said creating a buffer stock of commodities with the National agency has always been a rational option considering there’s a demand from not only the marginal farmers but also from the small dairy plant operators to leverage the issues of scale and bargaining power. It also acts as a cushion during the lean season as well as at the time of flush. 

“Distribution of milk powder is an apt alternative to deal with surplus milk, however, instead of going through PDS, I would strongly suggest distributing it via a proper mechanism for midday meal schemes so that it can benefit the school children,” Santhanam said.

He said the proposal has several advantages which include improvement in malnutrition levels in rural kids, low conversion cost.

States such as Karnataka already have a well-functioning milk distribution scheme for school kids called the Ksheer Bhagya Yojana, which can be a model for such initiatives.