Surplus Milk Powder: Dairy Industry's New Problem - The Study IAS

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Economy

By The Study IAS

Jul 6, 2024

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Surplus Milk Powder: Dairy Industry’s New Problem

Context:

Cooperative and private dairies are holding an estimated 3-3.25 lakh tonnes (lt) of Skimmed Milk Powder (SMP) stocks at the start of the production year.

Skimmed Milk Powder (SMP) :

Cow milk averages 3.5% fat and 8.5% solids-not-fat (SNF), while buffalo milk has 6.5% fat and 9% SNF.
As milk is perishable and can’t be stocked, only its solids (fat and SNF) are storable after cream separation and drying of skimmed milk.
During the “flush” season ( when cattle and buffaloes produce more), dairies convert surplus milk into butter, ghee, and SMP.
These solids are recombined with water into liquid milk during the “lean” season (when production falls short of demand).
From every 100 litres of cow milk, a dairy can make about 8.75 kg of SMP (at 8.5% SNF), and 3.6 kg of ghee (at 3.5% fat).

Problem of Surplus in SMP:

The Problem arises when dairies procure excess milk beyond normal surplus during flush season.

♦ This leads to an oversupply of SMP and butter/ghee with limited demand.

In India, dairies annually produce 5.5-6 million litres of SMP, of which about 4 million litres are used for recombining during lean periods.

♦ The remaining 1.5-2 million litres are used in various food and industrial products, such as ice cream, biscuits, and baby formula.

The year 2023-24 saw abundant milk supplies throughout, unlike the previous year, which faced severe shortages.
This resulted in surplus milk availability, even during lean months, causing only around 2.5 million litres of SMP for reconstitution purposes.
Instead of the usual opening stocks of 1.5-1.75 million litres, dairies now hold 3-3.25 million litres of SMP.
With the new flush season beginning and expected to peak, exacerbated by increased buffalo milk production, the surplus SMP issue may intensify.

Impact:

It led to price declines for cow SMP, yellow butter and ghee.
Lower prices reduce revenue for dairies, affecting payments to farmers.

Potential Solutions:

Subsidise SMP exports to boost domestic prices and support dairy farmers.

♦ However, Global SMP prices have dropped making commercial exports less viable.

R S Sodhi, President of the Indian Dairy Association, proposes to create a buffer stock of SMP to stabilise prices and prevent future milk inflation.
Develop markets for SMP constituents such as:

♦ Proteins (casein and whey), carbohydrates (lactose), and minerals (calcium, potassium, and phosphorus).

Dairy Sector:

India is the highest milk producer and ranks first position in the world contributing 24.64% of global milk production in the year 2021-22.
Top 5 milk-producing states: Rajasthan (15.05%), Uttar Pradesh (14.93%), Madhya Pradesh (8.6%), Gujarat (7.56%) and Andhra Pradesh (6.97%).

♦ They together contribute 53.11% of total Milk production in the country.

India’s Export of Dairy products was 67,572.99 MT to the world for worth $284.65 Mn during the year 2022-23

Challenges of the Dairy Sector:

Animal husbandry and dairying face several significant challenges, including managing diseases and ensuring animal health.
Ensuring the availability and quality of feed and fodder is another critical issue.
Many operations struggle with outdated infrastructure and a lack of modern technology.
This is further compounded by a shortage of skilled personnel and veterinary services.
Financial constraints and limited access to credit exacerbate these problems, making it difficult for farmers to invest in necessary improvements.
Additionally, marketing and distribution present considerable hurdles, hindering farmers’ ability to reach broader markets efficiently.

Government Initiatives:

eGopala App, Rashtriya Gokul Mission, National Livestock Mission, Dairy processing & Infrastructure Development Fund (DIDF), National Animal Disease Control Programme (NADCP), Purnea Semen Station, first state-of-the-art frozen semen production station in Bihar State.