[Answered] Explain the reasons behind the surplus of skimmed milk powder (SMP) in the Indian dairy industry. How has this surplus affected the dairy farmers economically and politically? (250 words)

The surplus of skimmed milk powder (SMP) in India’s dairy industry is a complex issue with a ripple effect on both farmers and the industry itself.

Reasons for the Surplus

• Production Dynamics: During peak milk production periods (known as the flush season), dairies convert surplus milk into SMP to manage the perishability of fresh milk. This surplus occurs when dairies procure more milk than can be immediately absorbed by the market, resulting in excess SMP production.
• Market Demand and Supply: Fluctuations in demand and supply play a crucial role. In recent times, increased milk production, especially during a year of continuous milk supplies, has led to a significant surplus of SMP. This surplus is exacerbated when market demand does not absorb the quantities produced.
• Policy and Economic Factors: Government policies, such as subsidies on milk and dairy products or restrictions on cattle slaughter (which influence the population of unproductive cattle), also impact SMP production. These policies can indirectly affect milk production and the subsequent processing into SMP.

Impact on Dairy Farmers:

• Economic Impact: The surplus SMP has led to a drop in its market prices, affecting the revenue generated by dairies. This, in turn, impacts the prices they can offer to dairy farmers for their milk. Lower milk prices reduce farmers’ income and can discourage them from investing in better feeding or expanding their dairy operations.
• Political Implications: The surplus SMP has become a political issue, especially in states like Maharashtra, where dairy farming is a significant economic activity.

Possible Solutions:

• Export Subsidies: Providing subsidies on SMP exports could help reduce domestic stocks by making Indian SMP competitive in global markets.
• Buffer Stocks: Establishing buffer stocks of SMP could stabilize prices by absorbing excess supply during peak production seasons and releasing it during lean periods.
• Diversification and Market Development: Encouraging the use of SMP in diverse industries such as food processing (e.g., ice cream, biscuits) or industrial applications (e.g., baby formula) could create new avenues for its consumption, reducing dependency on traditional dairy markets.

Conclusion

Addressing the surplus of SMP requires a multi-faceted approach involving market strategies, policy adjustments, and industry collaboration to ensure sustainable growth and stability in the Indian dairy sector.