India's milk powder exports to surge on subsidies, dampen global prices

Heritage Foods

27/07/2018 06:45

* India SMP exports to jump ninefold to 100,000T - industry
officials
    * State, national govts subsidising exports to soak up local
glut
    * India dairy farmers protesting weak milk prices as losses
mount
    * Extra Indian supply expected to pressure soft global milk
prices

    By Rajendra Jadhav
    MUMBAI, July 27 (Reuters) - A massive milk glut in India
could hit international prices for dry milk powder after
government subsidies aimed at supporting local farmers look set
to spur a ninefold surge in exports, industry officials told
Reuters.
    India's skimmed milk powder (SMP) exports are expected to
rise to 100,000 tonnes in the 2018/19 fiscal year as rare
government incentives spur overseas sales and make shipments
from the world's biggest milk producer competitive on the global
market.  
    The rise in shipments from India could weigh on global SMP
prices that have more than halved in four years due to surplus
supplies, according to analysts and industry officials.
    The exports will also help India bring down inventories that
have dragged local raw milk prices to three year lows and below
cost of the production, sparking widespread farmer protests.
    In the wake of the protests, the western states of Gujarat
and Maharashtra, India's leading milk producers, offered a
50,000 rupees ($727.86) a tonne subsidy for exports of SMP,
while the central government approved a further subsidy of 10
percent of the export price.
    "India was not exporting a big quantity. The government
assistance will revive exports in coming months," said R. S.
Sodhi, managing director of Gujarat Cooperative Milk Marketing
Federation Ltd, the country's biggest milk processor.    
    The potential 100,000 tonnes of shipments expected in the
2018/19 year starting April 1 compare to 11,500 tonnes a year
earlier, Sodhi and other industry officials said. 
    
    INTERNATIONAL IMPACT
    India rarely impacts the dried milk export market. The U.S.
Department of Agriculture recently forecast the country's 2018
non-fat dry milk powder shipments to be only 15,000 tonnes,
compared to 410,000 tonnes from New Zealand and 720,000 tonnes
from the United States.
    Substantially larger-than-expected Indian exports could
therefore weigh on global skimmed milk prices that only recently
recovered from all time lows plumbed in January of around $1,550
per tonne. Benchmark  NFc1  prices traded on the CME Group are
currently around $1,730 per tonne. 
    "The potential addition of Indian SMP to global stocks will
keep the global SMP prices depressed," said Shiva Mudgil, senior
dairy analyst at Rabobank.        
    Historically, Indian SMP is offered at a discount to SMP
from New Zealand, which is perceived as of higher quality.
    In the global market, Indian SMP was fetching around $1,700
per tonne compared to local price of $1,900 per tonne and
production cost of more than $2,900, industry officials said.
    Indian dairies were not previously exporting SMP due to the
wide gap between local and overseas prices, but with the
government subsidy, that difference has narrowed, said Devendra
Shah, chairman of Parag Milk Foods  PAMF.NS , a diary firm based
in western state of Maharashtra.
    "Even after the subsidy, dairies will be losing money on the
exports," Shah said.
    
    FARMER LIFELINE
    India's dairy industry has been a lifeline for millions of
small farmers across India, providing critical revenue
especially during poor crop years. Indian farmers earn more
money from the sale of milk than from wheat and rice sales
combined.
    The country's milk production has grown at compound annual
rate of 4.9 percent over the last decade and is expected to
reach a record 180 million tonnes this fiscal year, Rabobank
estimates.
    But a fall in raw milk prices this year has hammered
farmers' earnings, which have already been squeezed by lower
crop prices, and added to pressure on authorities to act.
    Raw milk prices have fallen 20-25 percent in the last 18
months in India, even as cattle feed and fodder prices have been
rising, said Rabobank analyst Mudgil.
    The price fall also poses a challenge to Prime Minister
Narendra Modi's government which is trying to woo the critical
rural vote ahead of key elections next year.  urn:newsml:reuters.com:*:nL3N1QU1WC    
    As raw milk prices dropped, farmers in Maharashtra tried to
cut supplies to the country's financial capital Mumbai last
week.
    Some activists from Swabhimani Shetakari Sanghatana, a
farmer's organisation led by member of parliament Raju Shetty,
blocked tankers carrying milk to the city, while thousands of
farmers poured milk on roads to register their protest.
    "There wasn't any other way to draw the government's
attention towards falling milk prices," said Shetty.
    India's SMP stockpile has already risen to more than 300,000
tonnes and increased exports may not be enough to reduce
inventory significantly, said Arun Narke, director at
co-operative dairy Gokul in Maharashtra.
    "Additional local demand can be created by including milk in
government's midday meals scheme for school children. It will
help in bringing down malnutrition," Parag Milk's Shah said.
($1 = 68.6950 Indian rupees)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
India's milk powder exports set to surge and weigh on
international powder prices    https://reut.rs/2JZoJ2C
Global non-fat dry milk prices may face further pressure as
India dials up exports    https://reut.rs/2mMA78R
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Rajendra Jadhav
Editing by Gavin Maguire and Lincoln Feast.)
 ((rajendra.jadhav@thomsonreuters.com; +91-22-6180-7153 ;
Reuters Messaging:
rajendra.jadhav.thomsonreuters.com@reuters.net))