A recent surge in the prices of dairy products in the international market has brightened export prospects for India especially for skimmed milk powder (SMP), fat and butter.
The prices have surged to a year-high levels on the Global Dairy Trade (GDT) auctions - primarily driven by the consumption push post Covid-19 unlock measures in several countries and weakening of the US dollar.
On Tuesday, SMP prices on the GDT fortnightly auctions quoted at $3,243 a tonne which is 37 per cent up from $2,373 a tonne reported about seven months ago. When converted to Indian rupee, prices were at ₹235-236 a kg now as against ₹173-174 a kg in July.
As per a latest analyst report by ICICI Securities on the dairy sector, with rising global SMP prices, Indian companies will be able to export the surplus SMP inventory. This will reduce supply pressures in India and may result in higher milk prices in next 2-3 quarters.
Domestic prices
As per the Indian Dairy Association (IDA) projections, there are about 200,000 tonnes of SMP inventory in the country with domestic prices hovering at around ₹220 a kg.
Industry insiders noted that while the price difference isn’t attractive for SMP, there is a lucrative proposition to export butter and fat. The GDT butter auctions quoted at $4,735 a tonne, which works out to about ₹346 a kg, where as in India, the domestic butter prices hover at around ₹299-300 a kg.
“The SMP prices haven’t hardened much. But international butter prices are giving more than ₹40 a kg than the domestic price. That may have some impact on domestic butter prices. There is also a possibility of export of fat because the prices are attractive abroad,” RG Chandramogan of Hatsun Agro told BusinessLine highlighting the export prospects for Indian dairy products. At the GDT auctions, prices of Anhydrous Milk Fat, Butter, SMP Lactose, Whole Milk Powder have reported a surge in the range of 2 per cent to 17 per cent. Experts noted that in the international market, China and the Middle East nations have opened up with large orders which is believed to have triggered hardening of prices.
RS Sodhi, Managing Director, Gujarat Cooperative Milk Marketing Federation (GCMMF) said that higher international prices will be much beneficial for the local farmers.
‘No cheap imports’
“There is no chance of cheap imports to India. We see demand for SMP, white butter and butter oil in the international market. The price difference in butter and butter oils is about ₹40 a kg good incentive to export,” he said, adding that the SMP prices that works out at ₹230-240 will restrict any possible decline in the SMP prices in the domestic market.
IDA has also represented to the Finance Ministry to encourage dairy products exports at a time when India can enjoy price advantage for local farmers. GS Rajorhia, President, IDA, said that the industry will need export support from the government to ship the extra SMP stocks when the prices are higher in the international market. “The SMP prices are higher now but that doesn’t matter because even now there is not much difference,” he added.