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SMP prices fall as industry sees dip in demand for dairy products amid Covid lockdown

Items like cheese, butter, paneer and skimmed milk powder (SMP), which form the bulk of what the industry calls HORECA (Hotel Restaurant and Catering) sector, have reported the lowest sales.

Written by Partha Sarathi Biswas | Pune |
Updated: April 28, 2021 11:55:52 pm
While demand destruction continues to haunt the sector, some dairies blame the fear psychosis for the distress sales. (Express photo/Representational Image)

The ongoing lockdown due to Covid-19 case surge, and the resultant dip in demand, are once again plaguing the dairy industry. The sector, which was enjoying good returns till about a month ago, is now worried about the adverse impact if the lockdown continues for a longer time.

As shops, restaurants and hotels remain closed, sale of commodities such as butter, cheese and paneer have dropped. Sale of liquid milk has also been hit due to the closure of tea shops and sweet marts. Even the soaring temperatures have not led to higher sale of ice cream, which is a money churner for dairies during summer.

R S Sodhi, managing director of Gujarat Cooperative Milk Marketing Federation — the cooperative giant which markets milk and milk products under brand Amul — said ice cream sale is almost one-third of what it was during the same period in 2019. “Of course, we can’t compare the sale of 2020 as the nation-wide lockdown had already started back then. But ice cream sales have been hit,” he said.

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Items like cheese, butter, paneer and skimmed milk powder (SMP), which form the bulk of what the industry calls HORECA (Hotel Restaurant and Catering) sector, have reported the lowest sales.

The direct result of this slump in demand has been a collapse of commodity prices. Sodhi said the low demand for SMP has seen prices, which were in the range of Rs 260-265 per kg, correct to the present rates of Rs 225-230 per kg. Other dairies have reported prices falling to Rs 215-220 per kg. This correction in domestic markets come even as international SMP prices continue to remain robust. Auctions on April 20 at the global online platform Global Dairy Trade, which is owned by New Zealand’s cooperative dairy giant Fonterra, has seen a slight correction of $ 3,365/tonne from the previous high of $ 3,367/tonne of April 6. These are the highest prices the platform has seen in the last five years.

While plunging demand continues to plague the sector, some dairies blame fear psychosis for distress sales. Dasarth Mane, chairman and managing director of Indapur-based Sonai Dairy, claimed that smaller dairies, which are in dire straits financially, are selling their stock of SMP to raise funds. “This has to be stop, otherwise the commodities market will collapse and farmer’s prices will tank again,” he said.

At present, India has around 1.15 lakh tonnes of SMP and about 30,000 tonnes of white butter stocks.

Since the start of the lockdown, dairies have started slashing their procurement prices to make ends meet. Farmers, who were earlier paid around Rs 30 per litre for milk with 3.5 per cent fat and 8.5 SNF (solid not fat), are now getting around Rs 25-27 per litre. While Mane said prices would not go down below Rs 25, other dairies are uncertain about how long demand levels will remain low.

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