Indian government wants to stop milk prices from boiling over — investors in Heritage Foods, Parag Milk, and Hatsun Agro are watching closely

• Milk procurement prices have risen over 5% for the sellers and by ₹4 for every litre bought by the consumers including marquee brands like Amul and Mother Dairy.
• This is largely due to disruption in production as well as a sharp 25% spike in the cost of animal feed.
• The Department of Animal Husbandry and Dairying will meet tomorrow, January 3, to discuss ways to curb further spikes.

Brands like Amul and Mother Dairy increased the retail price of milk by ₹4 a litre last year, pinching consumers who were already stung by the sharp spike in onion prices in recent months. The Department of Animal Husbandry and Dairying will meet tomorrow, January 3, to discuss ways to curb further spikes.

Milk prices rose because procurement prices went up 5% for the companies largely due to disruption in production as well as a sharp 25% spike in the cost of animal feed. Price hikes at the retail level were not enough and that capped the profit growth leading to a sharp fall in stock prices for milk retailers like Heritage Foods, Parag Milk Foods, and Hatsun Agro.


"We expect milk procurement prices to continue to rise in the first half 2020 but correct in the second half," an ICICI Direct note said in December. “There is no immediate plan to increase milk prices,” RS Sodhi, managing director, Amul, told Financial Express Online on January 2.

Key reasons for higher milk procurement prices:
1. Initially delayed and later prolonged monsoon.
2. Floods in states like Maharashtra, Bihar, Karnataka and Tamil Nadu
3. Higher global prices for skimmed milk products
4. Higher cost of animal fodder

The shortage of skimmed milk powder was a big factor in pushing prices up.

Skimmed milk powder is mainly used by:
1. bakers to enhance the tenderness of the food such as doughnuts, cakes and bread
2. mothers for babies who are intolerant to breastfeeding

Indian milk exporters got a helping hand in the form of state subsidies last year.

1. Maharashtra state government: ₹5/ltr on milk products and ₹50/Kg on skimmed milk products
2. Gujarat state government: ₹50/Kg subsidy on SMP exports and
3. Benefits under Central government's merchandise exports scheme was raised to 10% from 7% earlier.

These subsidies allowed dairy companies to reduce the excess inventory. All eyes will now be on the government on what steps it announces tomorrow to curb retail milk prices spiralling out of control.

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