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India's dairy sector will continue to reel under pressure of SMP

Milk production in the country grew annually at 5.90 percent during FY13-FY18 and the rating agency expects it to reach 186 million tonnes in FY19, which will lead to a higher market surplus in the system.


PTI Last Updated at 31 Jul 2018, 19:07 IST India

The country's dairy sector will continue to reel under the pressure of high skimmed milk powder (SMP) inventories and low prices, till the global market for SMP and casein revive, according to India Ratings. The recent policy measures of increasing import duty on whey, offering a subsidy to milk farmers an exemption from the goods and services tax (GST) for certain categories will provide a marginal relief to the sector, it added.

Milk production in the country grew annually at 5.90 percent during FY13-FY18 and the rating agency expects it to reach 186 million tonnes in FY19, which will lead to a higher market surplus in the system.

Due to limited growth in demand, the industry is forced to convert the highly perishable commodity into SMP, to be sold on the business-to-business platform in the domestic and international markets. However, price growth in the international market has been slow since June 2017, after a brief recovery during April 2016-May 2017.

"This has led to SMP stockpiling up, which also reflected in the procurement prices in some states," it said. As the procurement prices have remained subdued due to demand-supply imbalances, many state governments are witnessing agitation from dairy farmers.

The depressed demand in the international dairy market has had a major impact on dairy farmers and the government through customs duties and exports incentives are trying to influence international dairy trade. Whey imports, which accounted for 74.89 percent of the dairy imports, grew 65.38 percent year-on-year in FY18 to 16.99 million kilogram due to their weak international prices, according to the agency.

By increasing the customs duty on whey milk powder to 40 percent from 30 percent, the government has taken steps towards incentivizing the consumption of piled up domestic stock and increasing its domestic production. The government is further trying to increase the export incentives to 20 percent and looking for untapped export destinations.

India Ratings believes that though this could push exports, it would negatively impact international market prices where there already is a supply glut.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)


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