Next fiscal likely to open up new export markets for Dairy Industry

China instead of importing milk and milk items, is increasingly meeting its dairy demand by buying up diary assets in New Zealand.

Jayarama Emani | The Dollar Business

Dairy-The Dollar Business

“The global dairy market is in turmoil. One of the reasons for this turmoil is the new strategy adopted by China lately,” said India Ratings & Research (Ind-Ra), a credit rating agency.

In its latest report on Indian Dairy Industry released on March 19, 2015, Ind-Ra said that China instead of importing milk and milk items is increasingly meeting its dairy demand by buying up diary assets in New Zealand. This is similar to the strategy China adopted earlier with respect to sourcing of natural resources to meet its domestic demand.

India’s dairy exports haven’t performed well during the first eight months of FY15 due to a drop in international prices backed by lacklustre international demand, rising domestic prices and the abolition of SMP (Skim Milk Powder) export incentives taken by the government since July 2014.

Though the agency said that it expects dairy exports to pick up in FY16, these events will continue to impact exports in the first half of FY16. Although the lifting of European milk quotas will increase competition, it is unlikely to impact India’s exports as the international prices continue to be unattractive.

However, the report said that it expects India to remain a net dairy exporter in FY16 with surplus SMP stocks and the government maintaining its stand on no import duty concessions on dairy.

FY16 is also likely to open up new export markets for India in light of Russia not planning to give up on its import embargo on dairy products from the European Union, the US, Australia, Canada and Norway in light of the Ukrainian crisis. Gujarat Co-operative Milk Marketing Federation Limited (Amul), India’s largest dairy co-operative, is exploring export options to Russia.

India's dairy exports, on an average, contributed only 0.09% to the total exports and grew at a CAGR of 22.02% over FY06-FY14 to INR33.26bn. Dairy imports during the same period grew at a CAGR of 25.57% to INR2.14bn and on an average accounted for only 0.03% of the total imports. India’s dairy exports and imports were affected during FY11 and FY12 due to the export ban imposed on milk products such as skimmed milk powder (SMP), whole milk powder (WMP), dairy whitener, infant milk foods, casein and casein products due to shortages in the domestic market.

India’s dairy export market is dominated by milk, cream and ghee. Milk scarcity in FY11 and FY12 resulted in milk and cream (average: 45.38%) outweighing the usual import products such as butter and related dairy spreads (30.45%) and whey (19.1%).

The top 10 export destinations accounted for 72.33% of the country’s dairy export with Bangladesh (19.17%) topping the list in FY14. Even in case of import, the top 10 countries accounted for 94.15% of the total dairy import as 21.42% of India’s dairy import was from France alone.

Although India is no longer dependent on imports to meet its demand for dairy and dairy products, it does not feature among the key dairy exporting countries of the world. India’s share in the world dairy export is miniscule (average share 2000-2011: 0.62%).

Most of the milk and dairy products are consumed domestically due to dietary habits and the restriction imposed by the government on dairy exports during deficit years. Another reason for muted export is the lower share of organised sector in the marketable surplus of milk and dairy products in India.

Global price movement impacts the quantity of export and imports of milk and milk products. A higher international price incentivises producers to push up the exports and vice-versa. A drop in the international price of dairy products in FY10 resulted in dairy exports dropping by 50.99% (quantity).

This article was published on March 19, 2015.

The Dollar Business Bureau - Mar 19, 2015 12:00 IST