Lactalis India head seeks government support to absorb rising powder, butter stocks

INDIA – The Managing Director of one of India’s largest dairy processors has called for government intervention to reduce rising stocks of milk products due to low demand caused by the Covid-19 pandemic.

Writing in a blog post, Rahul Kumar, the Managing Director Lactalis India, a global dairy group, has said that the rise in milk supply and a reduced demand for milk products has led to mounting inventories of Skimmed Milk Powder (SMP) and butter in the country, which require government intervention to support the dairy sector.

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To help offset the huge stocks, Kumar has called for the government to spend up to US$ 400 million in export subsidies and for the country’s dairy board to spend some of this cash to buy buffer stocks from processors to enable them continue sourcing milk from farmers across the country.

India continues to be the largest producer of milk in the world and is likely to retain its prime position with an annual growth rate of 5.5% during the last three to four years.

Even with the COVID-19 pandemic the industry has proven to be resilient as Indian dairies ensured uninterrupted milk procurement and supplies, said Kumar.

He added that presently India has in stock 200,000 metric tonnes of SMP and 80,000 metric tonnes of butter, which is extremely high considering it is the lean season of milk production in the country.

The rise in stock has also led to the market prices of SMP being slashed by over 40% compared to pre-lock down period, which has in turn led to steep drop of earnings to farmers, he explained.

“Across all Indian states, milk prices have crashed by 20-40%, resulting into huge erosion of farmers income by whopping INR 6000 Crores (US$ 800 million) per month since last 3 months,” stated Rahul.

Considering the normal flush season, it is expected that by end of the year the country will be having a minimum 500,000 MT of SMP and 200,000 MT of butter and milk prices to farmers would further slide which would be disaster for dairy industry, predicted the MD.

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Protect industry and farmer interest

To protect the interest of the 70 million Indian dairy farmers, Rahul has called upon the government to formulate strategies that will ensure disposal of the rising inventories to protect the dairy industry and the dairy farming community in the country.

He has suggested for provision of export subsidy of INR 60 per kg for and export minimum of 100,000 MT of SMP and also, a direct subsidy of INR 5 per lit for milk being utilized for production of SMP and butter till December 2020.

In addition, he has recommended that the National Dairy Development Board (NDDB) of India to purchase 100,000 MT of powder as buffer stocks at INR 250 per kg for sale during the next lean season, without incurring any losses.

The outflow to implement the stated strategies would be close to INR 3000 Crores (US$ 400 million) which according to Rahul is meagre compared to the erosion in income of dairy farmers who are in distress and are unable to feed the animals properly, which would lead to severe impact on milk production in the coming year.

“Any delay in taking actions to save Indian dairying would have catastrophic impact, which must be avoided,” he added.

According to a report by Research and Markets, as of 2018 India was accounting for 19% of the global dairy market share.

The country’s milk processing industry is expected to expand at a compound annual growth rate (CAGR) of 14.8% between 2018 and 2023, and will reach INR 2,458.7 Bn (US$32.8 billion) in 2023.

India has become one of the most affected countries in the World by the Covid-19 pandemic, with the latest cases approaching the 2 million mark and more than 40,000 deaths by August 6, 2020

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