July 27, 2018 / 5:53 AM / 5 months ago

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

MUMBAI (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.

FILE PHOTO: Milk containers hang from the windows of a passenger train in Ghaziabad on the outskirts of New Delhi March 14, 2012. REUTERS/Parivartan Sharma/File Photo

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 (£555.27) 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.

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.

Reporting by Rajendra Jadhav; Editing by Gavin Maguire and Lincoln Feast.

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