Can India grow dairy powder exports to China in wake of NZ crisis?

By Raynah Coutinho

- Last updated on GMT

Related tags Milk powder Milk

RS Sodhi is one of the most influential figures in Asian dairy
RS Sodhi is one of the most influential figures in Asian dairy
According to the chief of India’s biggest dairy exporter, India’s milk product exports could jump my more than one-half this year in light of China’s fractured relationship with New Zealand following the latest Fonterra crisis.

By suggesting that exports of skimmed milk powder could reach 100,000 tonnes a year, RS Sodhi, managing director of Gujarat Co-operative Milk Marketing Federation, best known for its Amul brand, which leads all domestic dairy categories, ignited tremendous optimism over over how India could seize the initiative with its northern neighbour. 

However, wider ambition will be tough to achieve, according to industry experts. 

The biggest roadblock to capitalising on its lucrative neighbor – and New Zealand’s biggest dairy market – stands with the trade ban between the two countries. 

Trade blocks

China and India have mutual trade bans in place with respect to dairy products. This rules out any direct opportunity in China for Indian players in the current context​,” said Shiva Mudgil, a dairy analyst at Rabobank India. 

While one might not see Amul-branded products themselves on Chinese shelves, the company continues to sell its skimmed milk powder to manufacturers in the country, who then brand and package it before retail. Sodhi and team expect to export 5,000 tonnes of SMP this year, representing a five-fold growth.

Also, China isn’t the only opportunity. As recently as last month, India’s fast-growing domestic demand for milk products prompted Fonterra - which already exports products worth NZ$200m, mainly comprising pharmaceutical-grade lactose, to India - to express interest in co-owning farms with local dairy companies.  

During a visit by Kiwi prime minister John Key to India last month, he said the emerging country displayed the potential to become a larger market for New Zealand than China. After all, India is home to 20% of the world’s population of children. 

But on home turf, there is a shortfall in production. “Any opportunity is fundamentally dependent on whether India will have sufficient surplus production of raw milk above domestic requirements, and this relies on favourable climatic conditions​,” Mudgil said. 

He has good reason to advise caution: the government there only deemed the industry’s ability fit to surpass domestic demand in June last year, after which it finally lifted its export ban on skimmed milk powder. 

Production growth

But conditions are continuing to improve. RG Chandramogan, managing director of Hatsun Agro Products, one of the country's leading milk powder exporters, told Economic Times that India's milk production is likely to rise almost 5% to 133m tonnes by the end of the current financial year. With domestic demand projected to be 128m tonnes, this will leave sufficient surplus for the production and export of skimmed milk powder. 

The good news for Sodhi’s predictions is that he has more international markets to explore. The Fonterra crisis has resulted in product recalls in Vietnam, Sri Lanka, Thailand and Singapore, while India could also work towards scaling up exports to other emerging Asian countries. 

India’s skimmed milk powder exports have been good since the exports ban was lifted last year, and exported 69,633 tonnes last year. This is largely due to the fact that exporters have been able to get better prices overseas than in the domestic market. This year has also been good for exports so far. India has exported skimmed milk powder during the summer season as well​,” Mudgil added. 

Any kind of international export disruption could be good for India’s ambitions in the short-term, but India’s own quality standards might be a key hinderance for its sustained positioning in new markets. 

Indeed, more than production the bigger question will be whether India’s dairy industry can compete with global traders on quality, price and reliability, although Mudgil doesn’t see it having to be answered immediately. 

But Sodhi has displayed optimism, saying: “We don’t have such a [food safety] problem. This is a very good opportunity for India​.” India exported US$230 million worth of SMP last year, largely to countries in the Middle East and in elsewhere in South Asia.

There is also the question of whether global prices will remain attractive compared to domestic prices, especially with prices in India’s home market expected to escalate over the looming festive season. 

Industry-watchers say that prices have risen by nearly 15% over the last six months, and the positive view on this deciding factor for success is that the vastly depreciated rupee will continue to keep export prices attractive. 

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