Price Crash in International Market Reduced Margins in Dairy Sector

Posted on: Nov-2017 | By: QY Research | Others

The profit margins of Indian dairy companies have fallen sharply. For the past few months, skimmed milk powder (SMP) prices have fallen in the international market. Apart from this, the GST in the domestic market has doubled the tax on GST compared to the earlier rates. Due to this, dairy companies have reduced procurement prices from 10% to 22% for the last few months. Prakash Kutwal, secretary of Milk Producer and Process Professional Welfare Association said, “The price of skimmed milk powder in the international market has decreased from Rs 260 per kg to Rs 120 per kg in the last three-four months."

According to the organization, there is around 30 Million liters of milk production per day in Maharashtra, in which only 80 Lakh liters is used in a liquid pouch. The rest seems to be making about 2.20 Million Liters butter milk, skimmed milk powder, ghee, cheese, curd, and others. Maharashtra is a leader in the export of milk products, hence the prices of milk in the international market are in the most destructive condition. Here, 12% GST on ghee, which was earlier 6%. The GST has been reduced by Rs 30 per kg for the small brand, while ghee of national brands has been costlier by Rs 55 per kg.

Maharashtra Government has increased procurement price of cow milk of 3.5% fat to Rs. 27 per liter, while the price of 8.5% SNF (solid knead fat) milk has increased by 12%. Due to this, the state government had recently sent a notice to cooperative dairies that why not take action against them for not giving a rate of Rs 27 per liter for the government for milk.

The dairy firms have begun to decrease the consumer prices by Rs 2–4 per kg to increase the sales. Kutwal said, “In future, more prices are expected to cut.” The consumer price of cow's milk can come down from Rs 44 a liter in Maharashtra to Rs 40 per liter. Cooperative dairy has demanded from the government that if it wants to give higher prices to the farmers, then it will also have to start subsidizing such as Karnataka's Nandini Scheme.