Drought Hit Dairies take up Powder Conversion in Winter Post Demonetisation

Dozens of small Indian dairy firms that could not pay farmers to procure milk owing to cash crunch immediately after demonetisation in November first week, coupled with drought in some states, had resorted to buying skimmed milk powder (SMP) from large players to convert it into milk. 

This phenomenon of using SMP to make milk in winter season -a first in India -has helped large dairies register abnormal growths in SMP sales, which was also aided by improved demand from institutional players, said analysts. 

Usually, large dairies convert excess liquid milk production in winter seasons into SMP to be used for converting it into milk later during lean summer seasons. According to Shiva Mudgil, senior analyst with Rabobank, it is the unorganised channel that accounts for more than a third of Indian milk production that suffered the impact of demonetisation and lower milk availability owing to drought in some states. 

Mudgil added saying, they have experienced high consumption of SMP in the domestic market in Q3 of this financial year compared to previous years. SMP inventory has also come down this season unlike the excess inventory issues we faced in previous two years. Amitabha Ray, managing director, Schreiber Dynamix, said that the overall milk availability in the country has been hit by the droughts, which prompted smaller players to go for SMP purchase. Milk availability in Maharashtra has declined by 20%, leading to higher sales of SMP.

D Sunil Reddy, managing director of Hyderabad-based Dodla Dairy, said that while demonetisation could be one of the factors for improved sales of SMP, even the of SMP, even the smaller players tend to stock it when it is available at attractive prices, pushing up the sales for milk powder. Mumbai-based Parag Milk Foods registered a growth in SMP pping 273% year sales of a whopping 273% yearon-year, while Prabhat Dairy saw its SMP sales going up by 34.5% last quarter. 

Lower international prices of SMP did not encourage exports, says RS Sodhi, managing director, Gujarat Co-operative Milk Marketing Federation (GCMMF), which sells its products under `Amul' brand. “There is no scope or margin in exports market as of now be cause the price is way lower. Currently, the pri ce of SMP in export market is $2,600 per metric tonne and Amul is at $3,500 permetric tonne. Vivek Nirmal, ma naging director, Prabhat Dairy, said, that with good monsoon this time, there are expectations of the milk supply to be stable in the lean season (May-June period) and therefore, (large) dairies are op ting to lower their SMP stock. Due to the same reason, institutional players have also ramped up their SMP purchases.

By BOA Bureau