State to pump in funds to bail out KMF

The Karnataka government has extended financial assistance to the Karnataka Milk Federation (KMF) to offset the losses incurred by it in the recent past. The decision comes as a reprieve to the families of 20 lakh dairy farmers in the State.

According to a statement issued by KMF, the government has decided to provide interest subsidy over and above the four per cent towards the working capital loan required by KMF and its unions for making timely payments to the milk producers (for a period of six months) and towards its requirements till the end of the financial year.

The government will also recoup to KMF and the unions the cost towards reprocessing of the old skimmed milk powder (SMP) as and when required, so as to ensure that the product does not deteriorate.

Further, the government will share the loss due to the distress sales of SMP at a price lower than the cost of production for the current financial year. The government will share 50 per cent of the loss due to distress sales below Rs 180 per kg, made from October 1, 2012 to March 31, 2013.

Background

The procurement of milk has increased drastically in the last two years, especially due to the support price of Rs two per litre provided by the government.

Presently, the milk unions of KMF are procuring about 54 lakh kg of milk everyday as against the total sales of about 40 lakh kg per day. As a result, a surplus of about 14 lakh kg of milk per day is being converted to SMP and butter, so as to store it for a long time.

But due to countrywide surplus of SMP, KMF is not able to sell its stocks. This has created a shortage of working capital for the milk unions of KMF. Also, the prevailing price of SMP is much lower than the production cost, resulting in losses to KMF. Another problem faced by the Federation is the limited shelf life of the product.

The SMP, which KMF cannot sell within the specified time, may have to be re-processed for increasing the shelf life.

The re-processing cost has led to an additional burden on the KMF. Due to this, some of the milk unions were not able to pay dues to the producers.