Dairy companies see milk procurement price stabilising at higher levels

October 11, 2019

MUMBAI — With the onset of winter and the resulting rise in milk supply across the country, dairy companies are expecting procurement prices to stabilise at current levels.

Milk procurement prices for dairies are now Rs 31 a litre in Mahrashtra, from Rs 28 a litre before the severe floods in the western part of the state in the first fortnight of August. Thousands of milch cattle are feared lost. Similar flooding in other milk producing regions have hit the country’s output.

In contrast, milk demand has risen in the ongoing festival season, prompting dairy companies to raise procurement prices.

“While it is premature to estimate how the ensuing season spans out, milk procurement prices might not increase significantly from the current level,” said Amitabha Ray, managing director at Schreiber Dynamix Dairies, producer of Dynamix brand dairy products.

Dairy companies had also raised milk prices by Rs 2 a litre in May.

“The average monsoon rainfall has been surplus throughout India this year. Also, farmers are now getting a reasonably good price, which will set-off the 40 per cent increase in feed cost over the past year. Farmers will be encouraged to add a new set of animals, and consequently produce more milk this season. Thus, we don’t foresee any further increase in SMP (skimmed milk powder) prices from the current Rs 270-300 a kg,” said R S Sodhi, managing director, Gujarat Cooperative Milk Marketing Federation, which sells the Amul brand of products.

The five months from the start of November and ending March is considered the peak supply season. Dairy companies normally convert excess liquid milk into SMP, for supply in both liquid and powder form through the weak (April-October) supply period.

During the past year, liquid milk and SMP prices have risen by 25 per cent and 26 per cent, respectively.

“All dairy firms have already raised ghee and liquid milk prices by three to six per cent and five per cent, respectively, in the past quarter. Cheese prices have been revised upwards by 8-21 per cent over the past one year. Overall, the dairy universe will report 16 per cent year-on-year sales growth but a 7 per cent decline in Ebitda (operating earnings), as milk inflation has not been passed on entirely. Nestle has initiated a price hike in infant formula and baby food by four per cent in the last quarter, to pass on milk powder inflation,” said Sagarika Mukherjee, an analyst with Elara Securities.

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