Is Indian dairy exports dependent on subsidy or global market prices ?
This week the global dairy prices have touched a new high in almost a decade. The GDT ( Global Dairy Trade) Index at 1516 today is slightly short of last high of 1573 in April 2013. India is seeing a great shortage of milk in most parts of the country currently. The prices of dairy commodities are also moving up sharply. As per one of the research groups, the opening SMP stocks in the world in 2022 was around 500000 MT.
This data does not represent Indian stocks correctly. The data shows that India had only 40000 MT of SMP stocks on Jan 1st 2022. As per our research this stock is less than half of the stocks with the largest dairy cooperative in the country. The significant part is that apart from the USA, New Zealand , Japan ( mainly for captive consumption) India and Australia, none of the other countries including the EU were not having much SMP stocks.
Domestic Prices of dairy commodities
The current prices of SMP, Butter and AMF ( somewhat similar to our Ghee) in the International markets are at Rs 325, Rs 500.00 and Rs 520.00 per kgs respectively. The market rates of these commodities in India are SMP ( Rs 235-Rs 285), Butter ( Rs 310-Rs 340) and Ghee ( Rs 390-Rs 430) per Kgs. There has been a great impetus by the current government on exports from India. However the exports of dairy products are still not matching the previous years numbers.
Dairy exports from India
Historically, India has shown higher exports of dairy commodities at the time of higher GDT price index in 2013-14 and 2018-19 as shown in the figure above. Interestingly in both of these years the government of India announced an export subsidy for the dairy products for every one. The policy makers at times do not rationalise the need of export subsidy at the time when the export prices are at their peaks at global levels.
It clearly means that Indian dairy stocks are available in plenty but at a higher cost. This looks like a paradox that a country has built up huge stocks of dairy commodities by buying milk at a higher price. It also shows that most of the time , Indian dairy economics is not in sync with global farm economics. In this year the exports of SMP has gained some momentum in December but it fizzled out in January again. SMP, Butter & Ghee and Cheese & Paneer remained as the top three categories in exports from India exporting close to Rs 2000 Crores of commodities.
The possible scenarios
There has been an export subsidy being applicable to one of the largest dairy cooperatives in the country but still that is not sufficient to bring momentum in dairy exports from India. So the question which needs to be answered remains as follows :
“Is Indian dairy exports dependant on subsidy or global market prices ?”
The Indian dairy commodities market is looking very bullish with every one anticipating a big rise in commodities prices in the coming summer. But still, I will suggest everyone to forecast the possible future scenarios under the light of the following facts.
a. There is a milk shortage in most states in the country except Gujarat, Karnataka, Punjab, Rajasthan etc.
b. The stocks of SMP has not reduced to an alarming level which means there is no dearth of SMP buffer stocks in case the holder of those stocks needs cash in this inflationary times of milk prices and input costs.
c. The stocks of Butter seem to be less and same is the case of Ghee. But the Ghee market in the wake of insufficient regulatory controls( as the amendment for ghee standards will fully be implemented after two years) has sufficient supplies of adulterated ghee to keep the ghee prices in check.
d. The north India is at the doorstep of summers so the consumption of ghee will become limited barring the festivals or marriages ( which also seems to be less in March except the festival of Holi )
e. Due to good rains in western and Southern parts of the country there are chances for an early onset of flush in those states. That will remove pressure on the milk prices due to higher availability and thus more conversion of these commodities at lesser cost in those states.
The way forward
I feel this is the right time for the government to support exports of dairy products from India at current global prices by drafting some good schemes like PLI or others . Historically our exports during the bullish markets in the global market have never happened without government support. That reminds me the famous quote by one of the skate hockey champion Wayne Gretzky as below
Do share your comments on this analysis and help us learn the industry better.
Source : A Blog by Kuldeep Sharma , Chief editor, Dairynews7x7