Milk prices to rise despite export ban

Notwithstanding the ban on export of milk powder, prices of milk will continue to rise over the medium term because of sustained demand-supply mismatch and increasing input costs, believes CRISIL Ratings.

Even as the Centre’s recent order prohibiting export of milk powder, casein and allowing duty-free import of milk powder and butter will help enhance domestic supply over the near term, and keep milk prices stable over the next 12 months, it said.

With milk products exports forming around 5 per cent of India’s total milk production and domestic demand for dairy products remaining strong, the demand-supply gap is expected to continue to widen over the medium term, states CRISIL after analysing the credit risk profiles of 55 dairy players including co-operative milk federations in the country.

Along with that, increasing input costs of fodder and transportation will push milk prices up over the next three to five years, said Crisil Ratings’ Head Manish Kumar.

He pointed out that the demand for milk and value-added dairy products in the domestic market has been growing at over 6-8 per cent per annum because of increasing income, rising aspirations and consequent growth in per capita milk consumption.

Last month, the Centre prohibited export of milk powder and casein, which form 70 per cent of India’s dairy product exports estimated at $144 million for 2009-10.

However, the impact of the ban on export of milk powder and casein is expected to be minimal on Indian players because a buoyant demand scenario in the domestic market will enable them to increase their sales and pass on increases in the prices of raw milk.