SMP, Butter and ghee price in India gets bullish: Would it sustain ?

The commodities prices in India have begun to surge . The prices of SMP, butter and ghee are moving up. The price of milk in most parts of the country is also going up. In North the milk availability has become difficult and prices have gone upto Rs 45 per liter for buffalo milk . In Maharashtra the prices have  increased to Rs 24-26 delivered at plant by the private sector for cow milk.

The dairy commodities have shown an increase of 10-20% in the last ten days. Ghee is leading the race by touching Rs 350-360 per Kgs from a level of 280-290 early last week.SMP prices have increased by around 10-15% to Rs 190 -200 per kgs from Rs 160-170 per Kgs. Butter price has also moved up  from Rs 230 to Rs 250-260 per Kgs. This has boosted the confidence of all the stakeholders in dairy sector again.

The industry is quoting three key reasons for such change in prices. a. Lower milk availability  b. Outset of Festive season and c. Execution of a few large orders in exports as well as in the domestic market at higher prices. This ongoing rally of commodity prices and three point rationale looks fine provided we ignore the existing stocks of ghee, butter and SMP in the country.  Also read Let’s try something wrong

Critical examination of the situation

Let us examine this upward trend under two different types of lenses . These two lenses are  stocks of dairy commodities in India and poor milk availability in the country. If we look at this scenario from the existing stocks perspective then this upward trend doesn’t look very promising and might not sustain. Looking at it from the poor milk availability perspective ensures the rise in commodity prices might sustain the festive season.

There could be a third perspective also in which the processors might be consuming their captive stocks of butter and SMP to meet the requirements of the prepared milk category in the country. By doing this they might be in a position to consume their own stocks of commodities and also keeping costs lower by avoiding purchase of costlier milk from the farmers. The industry may easily consume around 25000 MT of Butter and 50000 MT of SMP per month by just recombining 30% of their total milk demand.

If the industry is taking this route for consuming their dairy stocks then the chances of sustainability of this surge are very high. The farmers may however not get higher prices in this flush as he was getting during last flush season but still depletion of stocks in any format would strengthen the dairy ecosystem. Also read Higher farm gate milk price and higher consumer milk prices : Can they coexist? A blog

Global dairy prices at GDT auction Sep,01,2020

At global level the prices have again fallen down by around 1%. AMF (ghee) prices are down by half percent at USD 3852 per MT. Butter prices are down by 1.2% to USD 3334/MT. SMP prices have gone up by 1.8% to reach a level of USD 2663/MT. If we compare these prices with local prices then global prices of AMF(ghee) and butter prices at Rs 295 and Rs 250 are still lower than the Indian prices.

However for SMP the price is Rs 200 which is slightly higher than the Indian quoted price. The industry is seeking an export subsidy of Rs 40 per kgs from the government. The government doesn’t seem to have  enough resources at this moment to spare the funds or the export subsidy. The government might still help the industry to mobilise exports of dairy products in potential countries through their trade counsellors.

A blog by Kuldeep Sharma