Owing to the closure of chilling units, halt in transportation, and manpower shortage, farmers had to sell liquid milk at a throwaway price of up to Rs 24-25 a litre, and even Rs 19-20 a litre in some parts, amid fear of spoilage. Before the lockdown, however, dairy firms were paying Rs 30-31 a litre for procurement.
“We expect milk procurement prices to have corrected by 20 per cent in the June quarter so far, due to the decline in demand from hotels, restaurants, and caterers, as well as from dairy firms, for value addition,” said Aniruddha Joshi, analyst at ICICI Securities.
Dairy firms increased production of skimmed milk powder (SMP), cheese, and butter during this period, despite falling demand on account of deferment of weddings and celebration of festivals.
Meanwhile, with home delivery for restaurants was permitted with certain restrictions, dine-in facility with 50 per cent occupancy is permitted for all non-AC restaurants starting June 8, 2020. However, decision to open restaurants remains with the states. Hence, plans for expansion and investment in capital expenditure are expected to take a back seat in the near term.
“At present, project investments are expected to drop to ‘nil’ in June 2020 quarter on account of the lockdown conditions, which are likely to extend further,” saidf Madan Sabnavis, Chief Economist, Care Ratings.
Meanwhile, procurement of SMP / milk at low prices by organised dairy players who have already hiked retail milk prices, shall aid margin growth in coming months. Shift to branded and packaged milk from loose milk due to fear of contracting the disease will also be favourable for the demand of products of organised players.
Interestingly, the government of India announced 4 per cent of interest subvention on working capital which would prove a major relief for servicing the loan.
Dairy companies in India had raised milk prices
in April to partly offset increased labour cost on home delivery.