Agri Business

As skimmed milk powder prices zoom, user industries bat for the creation of buffer stock

Rutam Vora Ahmedabad | Updated on January 03, 2020 Published on January 03, 2020

With a 7-8 per cent dip in peak season procurement this year, the demand for SMP buffer from ice-cream makers assumes significance   -  The Hindu Business Line

Govt to meet trade in Delhi today

A decline in milk procurement during winter, the peak producing season, has triggered concern about supplies in summer, a lean season. This has led to a rising demand for the creation of a buffer stock of skimmed milk powder (SMP).

SMP is a key ingredient for a host of dairy products such as liquid milk and ice-cream.

With a 7-8 per cent dip in peak season procurement this year, the Centre is meeting key stakeholders of the dairy sector on Friday amid looming threat of milk price inflation.

Players in the ice-cream segment have pressed for the creation of an SMP buffer stock. It can be built when production increases, and utilised during the lean period.

The Indian Ice-Cream Manufacturers’ Association (IICMA) has mooted the formation of a nodal agency to manage SMP buffer stock.

Nodal agency needed

“The government should devise a policy that, whenever due to excess (SMP) production, the prices go below the cost of production, the nodal agency should buy and stock the material,” the association said in its recent letter to Union Minister for Animal Husbandry and Dairying, Giriraj Singh.

The ₹9,000-crore ice-cream industry is among those that are facing spiralling costs due to a spurt in SMP prices, which have jumped to ₹330/kg against last year’s ₹180/kg.

Considering the SMP glut last year, the industry believes that the current prices are unusually high in a flush season — when milk supply should have been higher.

The Friday meeting, said to be a routine bi-monthly one with stakeholders, has an agenda that includes discussing the availability of milk, procurement and consumer prices, and stocks of commodities such as SMP.

The trade has prepared its own demand list that includes allowing strategic imports at a lower duty, besides the buffer stock, as immediate measures to ease the demand pressure. These issues, according to trade sources, are likely to be represented to the government at the meeting, which will be held under the chairmanship of the Secretary, Department of Animal Husbandry, at Krishi Bhawan in New Delhi.

“It is a usual meeting held every two months with the dairy stakeholders. There is nothing unusual about it,” one of the players invited for the meeting told BusinessLine.

Inflation likely

Different sections of stakeholders have expressed apprehensions about a potential inflationary pressure on liquid milk prices if availability doesn’t improve around summer.

But there are views which hold the inflationary fears unfounded. Dairy federations of leading milk producing States have claimed that milk procurement will eventually ease in January and the flush season will reach its peak.

“Due to an extended monsoon and moist weather in most parts of the western and southern States, there was a delay in the onset of the flush season. We may see increased flush in a few days from now and there will be no shortage of milk going forward,” said another dairy source.

The government, on the other hand, is seen facing a Catch-22 situation. On the one hand, it can’t explore import options after making a clear stand against the Regional Comprehensive Economic Partnership (RCEP). On the other, there is mounting pressure on a possible milk inflation due to a sustained rise in retail milk prices.

Insiders recall that the sector had encountered a similar situation in 2011-12, when milk price inflation hit double digits. But the then government had allowed strategic imports to tame the surging prices and ease the pressure.

In the current scenario, this option is less likely to rescue the government, which may have to explore other ways to keep milk inflation under check.

Published on January 03, 2020
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