COVID-19 lockdown effect: From deficit, dairies suddenly grappling with excess milk supplies

April 6, 2020

Harish Damodaran, Parthasarathi Biswas | IE

NEW DELHI, PUNE — Before the nationwide lockdown to curb coronavirus, Dodla Dairy Ltd was selling around 13.5 lakh litres per day (LLPD) of pouch liquid milk, curd and butter milk, while planning to step it up to 15 LLPD during the peak April-June summer consumption period.

The Hyderabad-based company, however, was struggling, with its average milk procurement at only 9 LLPD. To meet the gap, it was sourcing 2-2.5 LLPD of milk from other private as well as cooperative dairies, apart from buying skimmed milk powder (SMP) and ghee/white butter for reconstitution.

But post the lockdown, the equation has completely changed — Dodla Dairy’s sales are today down to just 8.5 LLPD, below even its procurement of 9 LLPD. “Till 15 days ago, we were paying Rs 330-340 per kg for SMP. Those rates have now dropped to Rs 220-230, but we no longer need any third-party milk, SMP or fat. Coronavirus has helped restore balance and what our own farmers are supplying is more than enough to take care of demand,” says D Sunil Reddy, managing director of the company, which recorded Rs 169 crore of sales in 2018-19.

Reddy attributes 60 per cent of the 5 LLPD fall in his sales to the closure of the HORECA (hotels, restaurants and catering) businesses. The balance 40 per cent is on account of reduced purchases by consumers, including migrant labourers in cities such as Bengaluru, who have gone back to their villages in Bihar and other states.

The above story — of deficit turning into surplus — is not unique to one dairy.

The Kolhapur District Cooperative Milk Producers Union, which markets pouch milk under the ‘Gokul’ brand, was prior to the lockdown selling 11-11.5 LLPD and procuring just about the same quantity. Today, it is able to hardly sell 8-8.5 LLPD.

The Pune District Cooperative Milk Producers’ Union’s procurement of 2.3 LLPD, too, barely matched its sales of ‘Katraj’ brand liquid milk until 10-12 days ago. Its sales have now dipped to slightly over one LLPD. From not having any surplus milk for other products — SMP, ghee, ice-cream or shrikhand — both dairies are currently grappling with excess supplies.

Gokul dairy, on Thursday, was forced to reduce its procurement price paid to farmers from Rs 31 to Rs 29 for milk containing 3.5% fat and 8.5% SNF (solids-not-fat).

“It’s not only HORECA demand that has collapsed. No marriages and other functions are taking place. Colleges and even hostels of coaching centres, such as Narayana and Sri Chaitanya, are closed. February to May is generally when sales of curd, flavoured milk and other products to these institutional segments shoot up. This time, it is different and nobody other than households are buying,” explains E Nageswara Rao, managing director of Vallhabha Milk Products Pvt Ltd. The Guntur-based dairy’s milk sales have declined from 2.5 LLPD to 1.5-1.6 LLPD in the past 20 days.

Significantly, until at least mid-March, there was talk of India’s milk output falling for the first time in 2019-20 and domestic dairies having little stock of SMP and fat to meet demand during the summer, when production by animals tends to fall. It was being projected that the country would have to even import up to one lakh tonnes of SMP.

But coronavirus and the resultant lockdown have led to prices of white butter (82 percent fat content) also crashing from Rs 290-310 to Rs 250-260 per kg. “Even at these rates, no movement or purchase is happening,” points out R Rajasekaran, managing director of AR Dairy Food Pvt. Ltd, which has a 1.5 LLPD liquid milk plant at Dindigul, Tamil Nadu. His firm, like many small and mid-sized dairies, supplies 50 per cent or more of its milk to hotels and teashops. That market has practically vanished.

With many private dairies, ice-cream companies and even khoa/chenna makers supplying to sweetmeat sellers slashing or discontinuing procurement, the excess milk is flowing to cooperatives.

Gujarat Cooperative Milk Marketing Federation has seen its procurement jump almost 15 per cent to 255-260 LLPD, from 225-230 LLPD at this time last year. “We are hiring 3-4 outside plants for converting the surplus milk to powder. We normally do this (job-work conversion) during the flush winter months, but never in April,” admits RS Sodhi, managing director of India’s largest dairy concern better known as ‘Amul’.

Karnataka Milk Federation (‘Nandini’) is at present collecting some 7 LLPD of extra milk, which the BS Yediyurappa-led government has decided to distribute free to the poor residents of urban slums across the state till April 14.

The Maharashtra government, too, has started procuring up to 10 LLPD of surplus milk at Rs 25/litre for converting into SMP and fat. The scheme, to be operational for four months from April, is expected to cost Rs 400 crore.

“With prices falling and nobody to take their milk, many farmers have stopped giving compound cattle feed to their cows. They are afraid of increasing production and so are just feeding them straw,” notes Pradeep G Pai, managing director of Srikrishna Milks Pvt. Ltd at Uttara Kannada in Karnataka.

Nobody saw this coming — at least till March 25.

  • Access to full website Database is only for our premium members.