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India’s potential dairy fat demand creates uncertainty

According to multiple market sources, India is currently running short of butter and clarified butter (ghee/anhydrous milk fat (AMF)). In a meeting last week, the Indian government announced it was considering whether to import ghee and AMF, or butter. If the government decides to come into the market, then the dairy fat market may find some support, potentially leading to an unexpected demand increase. India is the largest consumer of butter in the world, with annual consumption of 6.4 million tonnes. Under usual circumstances, Indian butter production is self-sufficient, but according to government sources, milk production during the 2022-2023 season was reportedly stagnant compared to the 2021-2022 season, which closed at 221 million tonnes.

However, according to the Indian Animal Husbandry and Dairy Secretary, demand for dairy increased over the same period by 8-10%, which can be linked to the market recovery following the COVID-19 pandemic. Stagnant milk production in India was largely a result of lumpy skin diseases, which continues to negatively impact the Indian dairy herd. Lumpy skin disease is a viral disease that affects cattle. It is transmitted by blood-feeding insects, such as certain species of flies and mosquitoes, or ticks. It causes fever, and nodules on the skin and can also lead to death, especially in animals that have not previously been exposed to the virus. Control options include vaccinations and culling of infected animals. Lumpy skin disease can lead to significant economic losses.

Market sources remain uncertain about how tight Indian milk supply could impact the global dairy market over the coming weeks and months. According to multiple contacts, the focus of the Indian government is on dairy fats as, unlike skimmed milk powder (SMP), the stock of milk fats continues to drop. While New Zealand and South American producers are currently able to offer the cheapest price levels, it remains uncertain if they will be able to cover the required volumes. Indian buyers could potentially look to other sources. Market participants are monitoring the situation closely to better understand if the Indian government approves imports of dairy fats. Mintec will continue to follow this topic closely over the coming weeks.

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