Retail milk prices rose by 3-4 per cent during April-December 2019, and are expected to rise 10 per cent during January-March 2020, thus closing this fiscal 5 per cent higher y-o-y.
The impact will be magnified in states such as Karnataka and Haryana, where state governments offer a subsidy of ~4-6 per litre on milk supplied to cooperatives. While large private players are able to match the price offered by cooperatives to obtain the quantity of milk they require, SMEs are unable to do so, and fail to procure as much milk as they require.
Milk procurement prices are expected to stabilise in FY21, given abundant availability of water following a monsoon that was 10 per cent surplus compared with the long period average.
Though the surplus monsoon played spoilsport for kharif crops, lowering production by an estimated 6 per cent, it has boosted sowing of rabi crops and is expected to lead to a healthy harvest, improve animal health, and exert downward pressure on fodder prices in coming months.
With the monsoon expected to be normal in 2020 too, milk procurement prices are likely to be stable hereon. This is expected to stabilise milk procurement costs, easing pressure on SME margins from Q1, FY21.