Delayed supply and increased demand of milk has led members of the dairy industry to discuss a possible escalation in its procurement price for farmers in the days to come. The pent-up demand from hotels, restaurants and canteens on one hand, and an almost stagnant production on the other, has led to the supply-demand mismatch, which dairy spokespersons say is expected to grow sharper in the foreseeable future.
The beginning of the Covid-19 pandemic had led to dairies witnessing a sudden dip in demand as hotels, restaurants and other commercial outlets were shut due to the lockdown. Dairies had started reducing their procurement prices even as commodities such as skim milk powder (SMP) and white butter started to pile up.
Excess milk is converted into anhydrous SMP, which is either traded as a commodity or re-hydrated when the demand for milk increases. By August, the country had seen the accumulation of around 2 lakh tonne of SMP, which had led to dairies demanding an export subsidy to reduce their burden.
The tables have turned three months down the line, with dairies experiencing a supply dip which would result in the shortage of SMP and white butter. This shortage — at a time which is normally associated with increased milk production — is due to farmers cutting on feed and supplements to their animals during the pandemic. This was done mostly due to dairies slashing their procurement prices.
Milk production in the dairy industry vacillates between the flush period, which usually starts in September and continues till March, and the lean period, between April and August. Animals naturally lactate during the flush period, while milk production dips during the summer months. At the start of the pandemic, dairy farmers witnessed a rare price war among dairies who were concerned about the supply shortage.
However, with the pent-up demand growing again due to the unlock process, dairies are seeing the return of a demand similar to pre-Covid times.
Rajiv MItra, CEO of Prabhat Lactalis (part of global giant Lactalis Group), attributed this to the reopening of hotels, canteens, restaurants and tea shops. “As people started moving about, roadside tea shops also became operational. They alone make up for 15 per cent of the institutional demand,” he said.
However, this demand increase has not been followed up with an increase in supply. RS Sodhi, managing director of the Gujarat Cooperative Milk Marketing Federation — the company which markets dairy products under the brand name Amul — also talked about a similar crunch. Amul’s daily milk procurement is stagnant at 204 lakh litre per day.
This supply crunch has led to dairies expecting possible shortage in the days to come. SMP, which had once become a headache for these dairies, is now a valuable commodity. The national SMP stock is around 1.40 lakh tonne, while the white butter stock is around 4,000 t.
According to Sodhi, it is only Amul which has a stock of butter. SMP prices in the domestic market are around Rs 180- Rs 220 per kg, which makes it a much more favourable market than exports.
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