In a major setback for millions of farmers, India’s milk consumption has decreased by 25% in the past month due to the closure of roadside hotels, restaurants and tea stalls in a national blocking framework to prevent the spread of the coronavirus.
The drop in consumption resulted in a drop of 5 to 7 rupees per liter (or 25 percent) in the milk producers’ achievement. The milk market is inundated with a surplus of supply, farmers in certain regions selling in distress with a 50% discount. Distress sales take place in remote areas where private and cooperative dairies have been unable to reach farmers for supplies due to the disruption of transportation services.
This scenario appeared after Covid-19 began to spread to the major milk producing states, such as Maharashtra, Gujarat, Karnataka and Tamil Nadu.
As milk production continues, declining consumption could deter farmers from making new investments in the coming season, as prices for milk derivatives such as skimmed milk powder (SMP) have also fallen due to few exports during the global pandemic.
“Milk consumption has decreased by 25% in the past month due to the closure of hotels, restaurants and roadside tea stalls. But, domestic consumption has increased. The closure of glaciers and others value-added products contributed to the drop in milk consumption, “said RS Sodhi, managing director of the Gujarat Cooperative Milk Marketing Federation (GCMMF), India’s largest dairy, which sells milk and its derivatives under the brand “Amul”.
On the other hand, household consumption of clarified butter, butter and milk has increased, since most people are at home in the midst of the country’s closure. However, the increase in household consumption is not enough to compensate for the drop in overall milk consumption. Household consumption accounts for almost 25 to 30% of India’s overall milk consumption.
Interestingly, dairies have not increased the prices of these milk derivatives despite a surge in consumption.
“We sell our products at maximum retail price (MRP),” said Devendra Shah, president and chief executive officer of Parag Milk Foods, producer of “Go” and “Govardhan” dairy products.
At the same time, the decline in overall consumption has prompted farmers to sell distressed milk, particularly in the remote regions of Maharashtra, Karnataka, Tamil Nadu and Gujarat. Some farmers offer milk to processors and private dairies at half the current price of Rs 30-31 per liter.
According to Sodhi, large cooperative dairies are required to pay farmers more because of their long-term ties to farmers. GCMMF pays Rs 31 per liter for cow’s milk and Rs 50 per liter for buffalo’s milk. On the other hand, private cooperatives and small cooperatives pay less in a situation of oversupply.
“This is a temporary phenomenon – just a few more weeks. With the start of summer, which is almost a month away, the supply of milk will decrease and prices will go up,” said Shah.
Normally, when the supply of milk exceeds the demand of consumers, dairies generally produce skimmed milk powder or milk powder. “However, prices for skimmed milk powder have fallen due to reduced export possibilities. Deliveries are interrupted and no orders are received. Despite the insufficient quantity of skimmed milk powder available on the market, it is not possible to convert the excess milk into skimmed milk powder and store it for supply during the peak demand season. Many dairies face a working capital problem due to the lack of bank funding, “said Sodhi.
The prices of skimmed milk powder on the domestic markets fell to Rs 230 per kg, against Rs 310-320 per kg about a month ago. A similar trend is emerging in international markets, where prices for skimmed milk powder have dropped to $ 2,500 per tonne from $ 3,200 per tonne about a month ago.
The dairies hope, however, that the drop in milk purchase prices will cancel out the squeezing of their profit margins, which was to be feared after the drop in sales of many products such as curd, buttermilk, lassi and ice cream.