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Skimmed Milk Powder (SMP)

6th July, 2024 Agriculture

Skimmed Milk Powder (SMP)

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READ ABOUT INDIA’S DAIRY SECTOR: https://www.iasgyan.in/daily-current-affairs/dairy-sector


  • With many states enacting stringent anti-slaughter laws, Indian dairy farmers have been facing challenges in disposing of unproductive cattle — the ones that do not give enough milk or happen to be male.
  • Now, they have been hit by a new “surplus” problem — of skimmed milk powder (SMP).
  • Cooperative and private dairies are holding an estimated 3-3.25 lakh tonnes (lt) of SMP stocks at the start of the production year that runs from July to June.

READ ABOUT INDIA’S DAIRY SECTOR: https://www.iasgyan.in/daily-current-affairs/dairy-sector

What is SMP (Skimmed Milk Powder)?

  • SMP is a dairy product derived from milk after separating cream (fat) and drying the skimmed milk.
  • Composition of Milk:
    • Cow milk: Contains 3.5% fat and 8.5% solids-not-fat (SNF) on average.
    • Buffalo milk: Contains 6.5% fat and 9% SNF.
  • Perishability of Milk: Milk is highly perishable and cannot be stored for long periods.

Production Process of SMP and Other Dairy Products

  • Seasonal Variation:
    • Flush Season: Period when cattle and buffaloes produce surplus milk.
      • South and Maharashtra: July to December (post southwest monsoon).
      • North and Gujarat: September to March (coinciding with buffalo calvings).
  • Utilization of Surplus Milk:
    • Dairies convert surplus milk into:
      • Butter and ghee from cream/fat.
      • SMP from SNF.
  • Product Output:
    • From 100 liters (or 103 kg) of cow milk:
      • SMP production: Approximately 8.75 kg (at 8.5% SNF).
      • Ghee production: Approximately 3.6 kg (at 3.5% fat).

Role of SMP in Dairy Industry

  • Storage and Reconstitution: SMP serves as a storable form of milk solids that can be recombined with water to produce liquid milk during lean seasons.
  • Balancing Supply and Demand: Helps manage fluctuations in milk production by providing a stable supply of milk solids throughout the year.

The Problem of Surplus in SMP

  • Excess Milk Procurement:
    • Dairies often procure more milk than necessary, beyond the normal surplus during flush seasons.
    • Resulting in surplus production of SMP and butter/ghee that exceed market demand.
  • Annual Production and Utilization:
    • India produces 5.5-6 million liters (lt) of SMP annually.
    • Approximately 4 million lt are used for recombination during lean seasons.
    • The remaining 1.5-2 million lt are consumed by industries producing ice cream, biscuits, chocolates, sweetmeats, baby formula, and other food and industrial products.
  • Recent Supply Dynamics (2023-24):
    • Abundant milk supplies throughout the year with no significant lean period in 2023-24.
    • Contrasted sharply with 2022-23, which faced unprecedented shortages.
    • Dairies in Maharashtra recorded high prices for yellow butter (Rs 430-435 per kg) and SMP (Rs 315-320 per kg) in February-March 2023.
    • Farmers were incentivized with higher milk prices (Rs 37-38 per liter for cow milk with 3.5% fat and 8.5% SNF), leading to increased production through improved feeding and new animal inductions.
  • Impact on SMP Inventory:
    • Due to continuous milk availability, only 2.5 million lt of SMP was used for reconstitution during lean summer months (April-June).
    • Dairies now face an excess inventory of 3-3.25 million lt of SMP, compared to normal opening stocks of 1.5-1.75 million lt in July.
    • With the new flush season starting and expected to peak after September, exacerbating the surplus issue.

Impact of SMP Surplus

  • Decline in SMP and Butter Prices:
    • Cow SMP prices for dairies have dropped sharply to Rs 200-210 per kg.
    • Yellow butter prices have decreased to Rs 335-340 per kg, which translates to approximately Rs 408-415 per kg for ghee (ghee has nearly 100% fat, compared to 82% for butter).
  • Market Dynamics of Milk Fat:
    • Annual production of milk fat by dairies is 3-3.5 million lt, significantly less than SMP.
    • Milk fat has a robust market in India, appealing to both households and industrial consumers.
    • Demand spikes during festival months (August to November) increase consumption of mithais (sweets) made from high-fat milk products like ghee, khoa, chenna, and paneer.
  • Prospects for Fat vs. SMP Recovery:
    • Fat prices are expected to recover more favorably compared to SMP.
    • High-fat milk products are essential ingredients in traditional Indian sweets, enhancing market demand, especially during festive periods.

Financial Impact on Dairies

  • Revenue Calculation:
    • For a dairy producing 8.75 kg of SMP and 3.6 kg of fat/ghee from 100 liters of cow milk:
      • Gross revenue at current prices ranges between Rs 3,224-3,333 per kg.
      • Deducting Rs 350 for post-procurement expenses (chilling, aggregator/collection agent commission, and transport to the plant).
      • Additional Rs 350 for processing and packing costs.
  • Net Income for Farmers:
    • After deducting expenses, the dairy can pay farmers approximately Rs 2,524-2,633, equivalent to Rs 25.24-26.33 per liter of milk.
  • Current Payment to Farmers:
    • The actual payments to farmers align closely with these figures due to current market conditions.

Exploring Potential Solutions

  • Proposal for Exporting SMP
      • Exporting excess SMP stocks is crucial.
      • Proposes exporting SMP commercially or as commodity assistance to neighboring countries.
    • Challenges with Commercial Export:
      • Global SMP prices have significantly declined.
      • Current SMP rates at platforms like Global Dairy Trade (New Zealand) are around $2,586 per tonne, down from a peak of $4,599 in April 2022.
      • This downturn makes commercial exports financially unviable due to lower returns compared to previous years.
    • Trend in Indian SMP Exports:
      • India's SMP exports have declined over the years:
        • From 1.3 million liters in 2013-14 to 4,800 tonnes in 2023-24.
    • Impact on Domestic Market:
      • Limited export options contribute to domestic stockpiling issues, exacerbating the surplus SMP problem.

Proposed Solutions and Future Strategies

  • Subsidy Proposal for SMP Exports
      • The government should provide subsidies on SMP exports.
      • This initiative could potentially elevate domestic SMP prices, allowing dairies to offer higher prices to farmers.
  • Buffer Stock Proposal
      • Indian Dairy Association proposes creating a buffer stock of 50,000-100,000 tonnes of SMP.
      • Purpose: To stabilize prices for producers by purchasing powder from dairies and covering storage costs.
      • Long-term benefit: Protecting consumers from potential milk inflation by maintaining stable SMP prices.

Skimmed Milk Powder (SMP)

  • Medium-term Market Development
    • Diversifying SMP Constituents:
      • Over the medium term, the dairy industry should focus on developing markets for SMP constituents:
        • Proteins (casein and whey),
        • Carbohydrate (lactose),
        • Minerals (calcium, potassium, phosphorous).
  • Reasons for Diversification
    • Demand Dynamics:
      • Increasing demand for milk fat in India drives the need for diversification.
      • Dairies produce over 2.4 kg of SMP for every 1 kg of fat extracted.
      • Preference for cow rearing due to higher milk yields and earlier calving, despite challenges with unproductive cattle disposal.
    • Buffalo Milk Dynamics:
      • Producing 1 kg of fat from buffalo milk results in less than 1.4 kg of SMP, influencing production dynamics and market strategy.

READ ABOUT INDIA’S DAIRY SECTOR: https://www.iasgyan.in/daily-current-affairs/dairy-sector


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