Do We Need A Buffer Stock of Skimmed Milk Powder?

“ Not only the private sector but also the small cooperative dairies and the Ice‐cream manufacturers have written to the Ministry of Animal Husbandry & Dairying, and to Ministry of Food Processing Industries, Govt. of India, to import about 65000 tonnes of SMP to maintain a minimum buffer stock for keeping the prices of milk in control during the summer months. The Central Govt. is making an assessment of the milk supply in the country and whether import of milk powder should be allowed. Flow of information related to milk procurement and stocks of SMP from private sector dairy plants is lacking, making real assessment difficult.

India produced about 187.7 million tonnes of milk during the year 2018-19. The per capita availability of milk has risen to 394 g per day pushing the Indian average milk consumption to higher than the world average of 294 g of milk per day. The annual growth rate in milk production kept pace at 6.4 per cent during the last five years.

During the last two months, the milk prices have been increased by the major dairy giants in the country, causing apprehensions about milk shortage during summer months. This price hike is witnessed against the backdrop of some States reporting a decreased milk procurement due to delayed arrival of Monsoon, while at the same time, in some States the onset of floods has impacted the production and supply of green fodder needed for milk production. The flush season which usually starts from October to March each year brings in about 50 per cent extra buffalo milk compared with the lean period (April to September). The SMP and butter produced in flush season is stocked and used for reconstitution in the lean months.

The deluge in the milk producing districts of Kolhapur, Sangli and Miraj in August 2019 disturbed the dairy supply chain and the incessant rains during the end of last year made things worst. Heavy rains in Maharashtra affected milk production by about 15 to 20 per cent as compared with the availability of milk per day last year. The prices of SMP from cows and buffaloes milk have increased to the level of ₹ 310 and ₹ 330 per kg respectively, plus GST. The readers may recall that during the last two years, the prices of milk powder remained at a very desperate level of ₹ 140 to 150 per kg largely because of the depressed overseas prices. The milk procurement prices and volume were cut by both the private sector and the cooperative dairies as the markets for skim milk powder and butter were not rewarding. Many farmers sold off their dairy animals as they were not paid remunerative prices for their produce and because of the high input cost incurred in feeding and maintenance. Farmers found dairy business harder to sustain. Ironically, dairies were saddled with unused stock of milk powders and ghee. Dairies found it difficult to make timely payments to farmers. To overcome the problem of surplus stocks of nearly 150 to 200 lakh tonnes lying in the godowns of the dairy plants, some state Governments gave incentives of ₹ 50 per kg and surplus of 10 per cent under the Merchandise Export from India Scheme to export or to dispose that milk powder in open markets. These incentives were available to Cooperative dairy plants only. Indian dairy traders lifted major portion of that SMP at ₹ 150 per kg to make profits in the current season. Those stocks available now are fetching double the price of what they purchased.

India’s annual SMP production, last year, was estimated to range between 5.5 to 6 lakh tonnes which is equivalent to 6.5 to 7 million tonnes of milk. In other words, about 4.5% of total milk is converted annually into skimmed milk powder. Stocks of SMP and ghee maintained by the dairies influence the pricing of milk, notwithstanding the uninterrupted flow of milk from the udders of dairy animals. Why should this 4.5% of milk upset the prices of milk being produced incrementally at the rate of 6% during each successive years?

The dairies have raised the selling price of milk two times consecutively in 3 to 4 months. Farmers are demanding higher prices for raw milk. Cow milk is not available for less than ₹ 30 per litre and buffalo milk not less than ₹ 46 to 48 per litre. Milk is available in plenty at these price structures in the northern states of India and spray driers have been put to full operation. The weather conditions have improved during December and January which is conducive for milk production. Procurement of milk is registering an upward trend. Southern States may witness this growth little later within a few months.

Speculations are being made that there will be some shortages of SMP in the country during summer months when the milk solids are required to balance the SNF in milk to meet the minimum statutory quality standards for milk and milk products.

However, this year because of shortage of milk availability, the selling prices of liquid milk have already gone up by ₹ 2 to 4 in North / West India and ₹ 2 to 6 per litre in South India. The prices are expected to go up further in the coming summer season perhaps because of low milk procurement. Various state governments are giving a support price for market milk @ ₹ 4 to 6 per litre through cooperative dairies. This incentive is not available to private dairies.

In view of the reported shortages in production of milk and SMP, the dairy industry is demanding the import of about 50,000 tons of SMP to create a buffer stock to control milk prices which may otherwise go very high. The imports of SMP may cause depression in domestic prices of milk which will go against the interests of milk producers. The objective of a buffer must be price stabilization for the consumers, rather than meeting the wishes of private players for their own benefits.

The import duty for SMP as per the current tax structure is 68%. The industry is requesting waiver of import duty so as to ensure unrestrained supply of milk, curd, buttermilk, etc. to public in the coming summer season at reasonable prices.

A shortage of fodder will result in low milk production and the procurement price of milk may have to be increased further during summer.

There have been instances in past when under the National Milk Grid Scheme, the supply of milk from surplus states to deficit states was resorted to by NDDB to smoothen regional and seasonal imbalances in supply and demand. The National Dairy Development Board (NDDB) Act 1987 also lays down provides the provision of building up a reserve of buffer stock of basic commodities. Over the years, however, both these key roles assigned to NDDB were left out to market forces. The buffer stock operation became redundant because during the last two decades, India became marginally surplus in milk, with the country even being a net exporter of SMP. The need for maintaining a buffer reserve was, therefore, not felt and the regional and seasonal imbalances in milk were handled by the market forces. NDDB may, however, reconsider the desirability of re-establishing National Milk Grid and buffer stocking of commodities to manage regional and seasonal imbalances in milk supplies and keep a vigil on pricing of milk in the interest of both the farmers and the consumers. This year, however, India’s milk procurement, and not the quantum of production, has shown about 12-15 per cent decline. During 2018-19, ice cream manufacturers and milk sweets producers were using cheap SMP in place of milk. This year, they have shifted their production functions solely dependent on milk. This diversion of milk towards traditional products has cut short the milk availability to dairy plants who usually collect about 30% of total milk production in India. Although the procurement prices for both cow and buffalo milk are reported to have stabilized as per the wishes of milk producers, it will take some time to even out.

Around 64000 tonnes of SMP got exported during 2019. By taking ₹ 50 per kg subsidy on 50,000 tonnes of SMP, the cost of the buffer stock could have been ₹ 250 crores. If the same amount of powder was purchased from dairies @ ₹ 200/- per kg, ₹ 50/- higher than the market rate, it would have costed the channelizing agencies just ₹ 1000 crore. That buffer stock should have been used in the lean months of the current year.

Not only the private sector but also the small cooperative dairies and the Ice-cream manufacturers have written to the Ministry of Animal Husbandry & Dairying, and to Ministry of Food Processing Industries, Govt. of India, to import about 65000 tonnes of SMP to maintain a minimum buffer stock for keeping the prices of milk in control during the summer months. The Central Govt. is making an assessment of the milk supply in the country and whether import of milk powder should be allowed. Flow of information related to milk procurement and stocks of SMP from private sector dairy plants is lacking, making real assessment difficult. They must cooperate. The current international price of SMP is reported to vary between ₹ 220 and 230 per kg.

There is shortage of dry fodder by about 24 per cent and green fodder by around 12 per cent. The prices of feeds have gone higher by 25-30 per cent. Feed and fodder cost constitute about 65-70 per cent of the milk production cost. Besides, there is also increase in other input costs at the farmer end and also at the manufacturers level.

Govt. of India through Ministry of Fisheries, Animal Husbandry and Dairying, are making significant efforts to improve the productivity of farm animals and uplifting the standard of living of dairy farmers.

The Govt. has planned to import sexed semen at cheaper rate of ₹ 100/- from USA. The sexed semen technology would help dairy farmers to ensure production of only female calves, thereby solving the problem of male calves abandoned because of high feeding cost. These animals pose a major threat to human life on the streets. The Govt. is also working to bring improvement in embryo transfer technology to ensure speedy breed improvement for higher milk yield as it is realised that huge potential exist to double farmer’s income through efficient milk production and ensuring quality and food safety.

As a result of high milk price, adulteration of milk has become rampant and quality compliance becoming more expensive. It is the responsibility of dairy industry to ensure the supply of safe milk to consumers at affordable price. The question of deciding minimum support price for milk does not seem feasible because of many variables in milk production. The organised dairy sector as stated above handles about 30% of total milk. Great scope exists for these dairies to reach out to far flung villages to raise procurement by another 50% to offset the crisis and to help rural milk producers to get remunerative price for milk. This activity will promote milk production to a large extent. Niti Aayog predicts that India will produce nearly 300 million tonnes of milk by 2033.

At present, there is no shortage of packaged pasteurized milk in the markets in India and consumers are getting milk at reasonable price. SARAS Dairy, Jaipur reports that they have achieved about 24% growth in milk procurement during the last few months and their milk sales have also increased by 4%. Surplus milk collected is being converted into SMP. Then why is the panic of milk shortages being created? The question of maintaining a buffer stock for skimmed milk powder will continue to remain unanswered.

The contribution of dairy and allied activities is 50 per cent higher than the farm sector. Mr. Atul Chaturvedi, IAS, Secretary, Ministry of Animal Husbandry, Dairying and Fisheries, Govt. of India has observed that not much private investment is coming to dairy sector. There is a need to look at dairy sector from pure economies rather than poverty alleviation as this sector will give better returns on investment than the manufacturing and services.