India Aims to Become a Dairy Power

March -- India, the biggest milk producer and consumer, is seeking to double output growth to become a "major player" globally and gain from rising prices, according to the world's largest dairy group by members.

The country expects to boost output by 10 percent annually in two to three years, R.S. Sodhi, managing director of Gujarat Cooperative Milk Marketing Federation Ltd., said in an interview yesterday. Production likely expanded 5 percent to 118 million metric tons in the 12 months ended Feb. 28, he said.

Milk futures traded in Chicago jumped 15 percent last month following a 26 percent advance in January, the most since March 2004, and whole-milk powder climbed to an all-time high in its biweekly auction, Fonterra Cooperative Group Ltd., the biggest dairy exporter, said March 1. Fonterra Chief Executive Officer Andrew Ferrier last month said milk prices may remain at least 50 percent above their historical averages in the long term, driven by strong demand in Asia and tight international supply.

"If productivity increases, we can be a major player in the world dairy trade," said Sodhi, whose group in the western Indian state of Gujarat produced 3.3 billion liters in 2009-2010 from 2.9 million farmers. "The potential is immense."

Powder gained 15 percent to $4,958 a ton from two weeks earlier, the highest level from the near-term contract since auctions began in July 2008, according to Fonterra, which accounts for 40 percent of the global trade in dairy products. Volatility is expected to remain after prices fell from their peak of about $5,000 in 2007 and 2008, Ferrier said.

Cheese, Yogurt

Milk costs in India jumped 20 percent in the past year, said Sodhi, whose group sells cheese, yogurt and milk-based products under the Amul brand. Higher prices may spur supply, the Foreign Agricultural Service of the U.S. Department of Agriculture said in December.

India's butter exports are forecast at 10,000 tons in 2011, up from an estimated 4,000 tons in the previous year, according to USDA. Overseas sales of non-fat dry milk may be 15,000 tons, from 10,000 tons in 2010, it said.

"This year, the growth in demand has surpassed output and we're paying farmers 20 percent more," he said. "Farmers have the capacity to augment output if they get a remunerative price. There will be sufficient milk next year."

The dairy market in the Middle East and Asia is growing at about 4 percent to 5 percent annually and markets are likely to remain strong, Bruce Donnison, general manager sustainability at Fonterra, said last week in Canberra. India could represent the next major market in the region after China, he said.

Incomes Double

India's $1.3 trillion economy has grown at an average 8.5 percent annually in the past five years, doubling incomes and lifting sales at local units of Nestle SA and Groupe Danone SA. The nation's per-capita milk usage has surpassed that of Japan and South Korea, and is four times that of China, Barclays Capital said in a November report.

"Value-added products like cheese and ultra-heat treatment milk have been the preferred options within food for a middle- class consumer upgrading to upper-middle class or upper class," Shiva Mudgil, a dairy analyst at the Indian unit of Rabobank International, said in an e-mailed response. "The value-added products market is very small and is growing at a strong rate."

Demand for branded milk is growing at 20 percent annually, said Sodhi. Total output can expand at more than 5 to 6 percent a year if farmers receive remunerative prices, he said.

"The official target of producing 180 million tons by 2020 can be achieved,By 2030, milk consumption will be double the level in 2010, reaching 242 million tons.