Indian dairy farmers are currently facing a significant challenge due to a surplus of skimmed milk powder (SMP). With cooperative and private dairies holding an estimated 3-3.25 lakh tones of SMP stocks, the issue stems from continuous milk supplies and reduced demand for recombination during the lean season. This surplus has led to a drastic drop in SMP prices, impacting dairy revenues and farmer payments.
Indian dairy farmers are facing numerous challenges, compounded by unfavorable agricultural laws, unavailability of MSP for agri produce (except few) and challenging weather conditions. Now, they are confronted with a new issue: a surplus of skimmed milk powder (SMP). At the beginning of the production year (July to June), cooperative and private dairies are holding an estimated 3-3.25 lakh tones (lt) of SMP stocks.
Understanding Skimmed Milk Powder (SMP)
Typically, cow milk contains about 3.5% fat and 8.5% solids-not-fat (SNF), while buffalo milk contains 6.5% fat and 9% SNF. Since milk is perishable, it cannot be stored in its liquid form. However, its components—fat and SNF—can be stored after separating the cream and drying the skimmed milk.
When milk production peaks, dairies convert excess milk into butter, ghee, and SMP. These products are then recombined with water to create liquid milk during the lean season when milk production drops.
From every 100 liters of cow milk, a dairy can produce approximately 8.75 kg of SMP and 3.6 kg of ghee.
The Surplus of Skimmed Milk Powder Issue
The surplus issue arises when dairies procure more milk than usual during the flush season, resulting in excess SMP and butter/ghee. Indian dairies produce around 5.5-6 lt of SMP annually, with roughly 4 lt used for recombination during the lean season. The remaining 1.5-2 lt is consumed by various industries, including ice cream, biscuits, chocolate, sweetmeats, baby formula, and other food and industrial products.
In 2023-24, continuous milk supplies meant that only 2.5 lt of SMP was consumed for recombination, leaving dairies with 3-3.25 lt of SMP in stock. With the new flush season beginning, the surplus is likely to increase.
Impact of the Surplus
The surplus has caused a significant drop in SMP prices, with realizations falling to Rs 200-210 per kg, compared to Rs 315-320 in early 2023. This decline contrasts sharply with the previous year’s record high prices for both SMP and yellow butter.
Whole milk fat production is around 3-3.5 lt annually and maintains a stable market in India, the SMP surplus poses a larger issue. The festive season from August to November sees higher fat consumption, aiding fat price recovery, but SMP continues to struggle.
Financial Impact on Dairies
At current prices, the gross revenue for a dairy producing 8.75 kg of SMP and 3.6 kg of ghee from 100 liters of cow milk is Rs 3,224-3,333. After deducting expenses such as post-procurement costs (Rs 350) and processing and packing costs (Rs 350), dairies can pay farmers Rs 25.24-26.33 per liter. This aligns with the current payment rates.
Politically, the situation is sensitive, particularly with Maharashtra state assembly elections approaching. The state government announced a Rs 5/liter subsidy for farmers, but it does not address the underlying SMP stockpile issue.
Potential Solutions
One potential solution is exporting the surplus SMP. However, global SMP prices have declined significantly, making commercial exports unviable. SMP prices at the Global Dairy Trade platform are around $2,586 per tone, down from $4,599 in April 2022.
India’s SMP exports have also declined, from 1.3 lt in 2013-14 to 4,800 tones in 2023-24. As India’s milk production increasingly comes from cows, finding a market for surplus SMP remains a growing challenge.
The surplus SMP problem highlights the need for strategic interventions in the Indian dairy industry. Solutions may include enhancing export opportunities, developing new domestic markets, and implementing policies that support dairy farmers in managing surplus production efficiently. By addressing these challenges, the industry can ensure sustainable growth and stability for farmers and dairies alike.
