Govt scraps sops for milk powder exports as milk prices shoot up

The government has scrapped incentives on export of skimmed milk powder (SMP) to cool prices and boost domestic supply on the back of sky-rocketing of milk prices and the possibility of shortage of fodder in view of deficient monsoon affecting milk production.

The Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Narendra Modi at its meeting on Wednesday decided to withdraw a 5 per cent incentive offered to SMP exporters.

India produces 5,00,000-6,00,000 tonnes of SMP a year. Of this, 90,000-1,20,000 tonnes are exported. Last year, India exported 1,20,000 tonnes; this year, however, exports might see a fall, dairy companies say.

In June 2012, the previous government had lifted the ban on SMP exports and included this product under Vishesh Krishi and Gram Udyog Yojana under which exporters can avail five per cent duty credit scrip on export value.

All the major milk suppliers, including Amul and Mother Dairy, had raised prices of various varieties of milk by Rs2 per litre to Rs34-48 per kg in the national capital. A similar increase was seen in other metros.

Reacting to the development, Amul managing director R S Sodhi said, "The move will not have much impact as international prices of SMP are higher than the domestic rates."

He said the country exported about 1.2 lakh tonnes of SMP in fiscal year 2013-14 for about Rs 3,000 crore. However, he said that the exports are low due to bullish domestic prices.

With prices of skimmed milk powder (SMP) softening in the international market, major dairy players are also planning to focus on the domestic market this year, which, in turn, is also likely to witness further easing in SMP prices owing to an over-supply.

Weak SMP prices would keep the prices of liquid milk in check for the coming few quarters.

With exports of SMP slowing down, there would be an excess supply of milk in the market, which otherwise, would have been used to make SMP for exports. Industry insiders feel that this would result in stable milk prices in the coming months.