Stung by the crisis caused by the lockdown that has weakened the financial capacity of the district milk unions, Karnataka Milk Federation (KMF) is proposing to seek a loan of ₹867 crore from banking institutions for the working capital to pay for the milk procured from farmers.
The 14 district milk unions will pledge their stock of butter, skimmed milk power and ghee among other products to raise loans for the working capital, and ensure payments to farmers are made on time. Till now, despite a shrunk market for milk and milk products, unions have not defaulted on payment. However, over the last two months with the demand for its products reduced, milk unions have resorted to cut in procurement price twice, which is in the range of ₹2.5 per litre to ₹3.5 per litre, affecting about 2 million farmers.
Top KMF sources confirmed that they are already in talks with banks to raise the proposed loan of about ₹867 crore on behalf of the unions. “Though the proposal is for ₹867 crore, it does not mean we will utilise it completely. In case the market conditions improve our loan component also comes down. We have negotiated the loans at the rate of 5.67% interest,” said the source. Among the top milk federations in the country, KMF has decided to utilise the ‘interest subvention scheme’ announced for the dairy sector by the Union government recently. “Of the 5.67% interest, the Centre pays 2% and if we make repayment on time, the Centre will further give 2% as incentive. This means, our burden is just a fraction of the interest negotiated,” sources explained.
Stocks pile up
The KMF’s necessity to seek loans for its working capital comes at a time when it is grappling with increasing milk procurement while the market for several value-added products is yet to open. Fast moving products such as butter, ghee, cheese and skimmed milk powder (SMP) that are in high demand in North India, hardly have any takers.
In the middle of peak milk season, the procurement has exceeded 81 lakh litres a day while the sale of milk is less than 50% of the procurement. On an average, about 30% of the daily procurement is being converted into SMP. The federation, which is saddled with 7,500 metric tonnes of SMP, has another cause to worry. For, the price of SMP has seen a steep decline from about ₹330 per kg before the lockdown to about ₹130 per kg now. On the other hand, supply to schools for Ksheera Bhagya has also stopped. The stock of butter with the unions exceeds 2,000 tonnes even as the butter prices have seen a decline from about ₹350 per kg before the lockdown to about ₹225 per kg now.
Inter-State trade hit
A source in Bangaluru Milk Union Ltd. (BAMUL) said that the milk unions were suffering losses in conversion of milk to SMP as a good part was being sent to Maharashtra and Tamil Nadu for conversion, which came at a higher cost.
However, KMF sources were confident that when the full fledged opening of food industry happens, the pile of stocks will find markets.