Milk situation is by and large comfortable in India, with some concerns on stocks of butter/ghee as the lean period of summer months has begun, government sources told CNBC TV18. Stating that more and more people are opting to buy processed and packed milk after the COVID-19 pandemic began, sources indicated that the milk consumption has risen by around 10 percent sector in the organised sector.
While the recent unseasonal rains in various parts of India during the Rabi harvest season may have impacted the availability of fodder, government sources pointed out that rains have extended the flush (milk production) season and thus may increase the milk production.
However, accelerating inflation in the prices of milk and milk products almost continuously for the last 5 months have worried domestic consumers and upset household budgets.
The Union Government has attributed the increase in milk prices to various factors including increase in input costs, mainly fodder prices, coupled with the attack of lumpy disease on cattle. The National Cooperative Dairy Federation of India (NCDFI), which runs a commodity exchange to even out the milk market, has also included private players as sellers on e-auction platform of NCDFI to provide a platform to the private milk processors to sell their excess Butter/AMF (Anhydrous Milk Fats).
Government sources explained that there was record milk procurement by major cooperatives from March 2020 due to lockdowns during the COVID pandemic, when several small private dairies were compelled to close operations, resulting in diversion of milk to cooperatives. The cooperatives continued with the procurement mostly at their earlier declared procurement rates, while some of them increased their procurement price. Despite good exports due to a favourable global market, huge milk stocks started piling up in India.
To maintain ample milk supply in the market during the lean season, the surplus milk from the flush season is converted into commodities like butter and Skimmed Milk Powder (SMP), which can be used for reconstitution of milk for the next lean season. SNF (Solid non-fat) determines the price of milk apart from fats, which are removed to create milk powder. To reconstitute the milk, SMP needs fats to reconvert to liquid milk for human consumption.
In January 2020, SMP's stock of 47,946 Metric Tonnes (MT) sold at the rate of Rs. 314 per kg in the domestic market. SMP stocks rose to 62,455 MT in February 2020 and were sold at the rate of Rs. 320 per kg. With the advent of the 1st lockdown, SMP stocks jumped to 86,000 MT in the 1st week of April 2020 which led to a fall of its price to Rs. 250 per kg.
With an extension to the period of lockdowns, fall in SMP prices due to a supply glut created further financial stress for the milk cooperatives, which they've overcome now.
"Part 1 of a 5-part series on India's dairy industry"
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