Improving Horeca ignites hopes for dairy sector to be in black in 2021

SMP prices seen stable at ₹250/kg on matching demand and supply

Amidst easing supplies and improving demand from the bulk consuming HoReCa segment, the dairy sector expects its business to be back in black this year.

The ongoing flush milk season (when milk output is at the peak) will cap any further spike in the skimmed milk powder (SMP) prices due to demand destruction following the Covid-19 outbreak, whereas gradual recovery in the demand, accompanied by subdued exports from the bulk consumers, will limit the downside. The SMP prices are seen stabilising at the current level of about ₹250 a kg.

Prices have recovered sharply by 56 per cent from the lows of ₹150-160 a kg in October 2020. The Global Dairy Trade (GDT) SMP price index on December 15 quoted at $2,930 a tonne after recovering by about 23 per cent from the lows of $2,373 in May 2020.

Stable market seen

RG Chandramogan, CMD, Hatsun Agro, told BusinessLine, “The year 2021 will be like a normal year unlike 2020. I don’t expect anything of a shortage or a glut. Currently, we are at the normal original rates, at which the farmer are more interested to produce. There are sufficient stocks available in the market. And by the time North India’s flush ends in March, we will see flush season in Tamil Nadu and Karnataka by May. So there won’t be any major shortage situation.”

According to Chandramogan, the sector hasn’t still reached the pre-Covid levels of consumption. “Overall, the market is still about 5-6 per cent lower than last year’s consumption,” he added. Amul maintains a comfortable stock position on SMP. “There is no pressure on either side — demand or supply of SMP. We don’t expect supply or demand concerns for SMP in 2021 as we had witnessed in 2020,” said RS Sodhi, Managing Director, Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF), which owns Amul brand.

A spokesperson for Mother Dairy said the business was impacted due to 2020 lockdown days. “However, the business especially for the household segment has returned to pre-Covid levels in the recent months, while the institutional segment is on its way to recovery.”

But the dairy major believes that lower offtake of SMP coupled with increased production and lower exports will cause higher SMP stocks.

Offtake still poor

The consuming industry, however, believes that the bulk segment offtake is still low but with inquiries for February and March coming up, the demand may take off for summer.

Anuvrat Pabrai from Indian Ice-cream Manufacturers’ Association (IICMA), said, “The bulk demand for SMP hasn’t taken off big way. Certain segments of HoReCa continue to face difficulties. The recent recovery in the prices is mainly due to festival demand for Indian sweets and dairy products. But going forward, we don’t see a big spike in the SMP prices.”