Despite high procurement, milk prices set to rise

Last Updated: Thu, Sep 06, 2012 20:05 hrs

It’s a problem of plenty for companies in the milk and milk products segment. As export of skimmed milk powder is losing sheen, they now have excess supply. As a result, private milk powder exporters have cut capacity, and milk procurement for dairies is rising.

However, higher costs of fodder and animal feed are weighing heavy, and some dairy majors are considering a rise in milk prices.

While the Centre lifted the ban on exporting skimmed milk powder (SMP) in June, low prices in the global market are acting as a deterrent for exporters.

Price change of various animal feed products in comparison to milk
Ingredient Jul-11
Deoiled rice polish 600 1,050 75.0
Sarson cake 1,050 2,000 90.5
Deoiled mustard cake 825 1,800 118.2
Soybean 2,100 4,200 100.0
Milk procurement 
price (Rs/kg fat)
395 405 2.5

Experts say the industry has skimmed milk powder inventory of about 1,50,000 tonnes. Speaking to Business Standard, a senior official at MILKFED Punjab, the cooperative milk producers’ federation in Punjab, said, “International export prices are not conducive to exports. The prevailing rate is Rs 135-140 per kg($ 2.7 a kg). This is quite low, compared with the input cost of Rs 160-170 per kg. He added, “Yet, we are not able to export the material at a stretch.”

MILKFED processes about 9,00,000 litres of its popular brand Verka a day. In August, Verka’s price was raised by Re 1 a litre in Punjab, Haryana and Himachal Pradesh.

Several dairies such as Mother Dairy and Amul, have seen a 15-25 per cent rise in milk procurement, as private SMP companies are operating below their capacity levels to clear inventories. Also, an increase of about 20 per cent in fodder costs in the last few months, owing to a drought-like situation in various parts of the country, and the rising animal feed cost are exerting pressure on milk producers.

Mother Dairy, a prominent company in the National Capital Region (NCR), is reviewing the situation.

A Mother Dairy spokesperson said, “ In NCR, which accounts for a significant portion of our sales, we have not carried out a price increase for the last twelve months. We have been absorbing various cost pushes. We will review the situation and take a decision soon.” The company had last revised prices on September 11, 2011.

Experts said on an average, last year, milk federations and private companies increased milk prices by Rs 5-6 a litre. The increase in prices led to farmers undertaking dairy farming, making it a remunerative business. As a result, every milk federation is recording a rise of 15-25 per cent in procurement. However, farmers feel “they should be paid at least Rs 3-4 per litre more, owing to high fodder and feed costs,” said Progressive Dairy Farmers Association President Daljit Singh Sadarpura.

Amul, the largest company in the segment, is, however, in a comfortable position. “The domestic market is better than the export market (for us). We command brand premium. In the last one week, export prices have risen six to seven per cent ($3000 last week, compared with $3,200 now). However, it still has a long way to go. I am optimistic about exports in the coming months,” said R S Sodhi, managing director, Gujarat Cooperative Milk Marketing Federation, which markets the Amul brand of products. Amul is considered India’s largest SMP exporter.

Sodhi said despite the rise in milk procurement, the Gujarat Cooperative Milk Marketing Federation didn’t plan to raise milk prices. It had last raised prices in April. He added the availability of fodder had improved, owing to good rains in Gujarat last week.

A senior official of the Karnataka Milk Federation agreed. “Last year, there was scarcity of milk, and SMP prices in February 2011 stood at Rs 200 a kg. Due to the paucity of milk, several federations like those in Bihar, Orissa and Madhya Pradesh bought SMP…Now, SMP prices have come down drastically compared to last year. We have about 10,000 tonnes of SMP in our inventory. We floated the tender for sale thrice, but could not get attractive price. So, we cancelled it. With a ban on export, inventories piled up and every player wished to generate cash revenue by selling SMP. Even private players have stopped accepting milk, which has resulted in an increase of 15-25 per cent in milk procurement by state cooperatives and federations.”

In Karnataka, milk cooperatives increased price by Rs 3 a litre across all categories in January. They don’t have any immediate plan to raise prices this year, said a senior official of the Karnataka Milk Federation.

More from Sify: