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Milk fat and SNF based procurement pricing

Indian organised dairies pay producers for milk on a two-axis pricing system: fat percentage and solids-not-fat (SNF) percentage, each priced separately. The system was recommended by the Milk Pricing Committee of the Government of India in 1972 and re-formalised by the National Dairy Development Board (NDDB) as the standard for cooperative and private procurement.

Overview

Milk is composed of water, milk fat and solids-not-fat (the protein, lactose, minerals and vitamins remaining when fat and water are removed). Each kilogram of fat and each kilogram of SNF can be converted into separately marketable products — ghee, butter, skim-milk powder, casein — so each carries an independent commercial value. Pricing milk on a single per-litre rate would either underpay buffalo producers (whose milk is rich in fat) or distort incentives. The fat-and-SNF formula keeps the per-litre payment proportional to the actual recoverable components.

Formula

Price per kilogram of milk = (kg-fat rate x fat %) + (kg-SNF rate x SNF %).

The SNF rate is conventionally set at about two-thirds of the fat rate. Daily kg-fat and kg-SNF rates are notified by each procurement body and updated periodically with market conditions for ghee, butter and skim-milk powder. Bulk-tank readings are made on a Gerber or electronic milk analyser at the chilling centre and applied to the morning and evening pourings of each producer.

Regulatory minimums

Under FSSAI standards (continued from the older Prevention of Food Adulteration Act), cow milk must have a minimum of 3.0-4.0% fat and 8.5-9.0% SNF (the precise numbers vary by state). Buffalo milk must have a minimum of 5-6% fat and 9% SNF. Milk below these thresholds is rejected at procurement or downgraded.

Implementation and effects

The system rewards balanced feeding — particularly green fodder, hedge lucerne and concentrate (Concentrate Feed Mix Dairy) — over hidden adulteration with water. It also explains the economic positioning of breeds: Jersey crossbreds (Jersey Crossbred Cow) and indigenous Sahiwal (Sahiwal Cow) benefit from higher fat percentages, while HF crossbreds (Holstein Friesian Crossbred Cow) compete on volume; Murrah (Murrah Buffalo) and Jaffrabadi (Jaffrabadi Buffalo) buffalo earn strongly on both fat and SNF. Mastitis (Mastitis Dairy) depresses fat and SNF percentages, compounding direct yield loss with a price penalty. Natural-farming desi-cow systems (Desi Cow Natural Farming) use the same procurement formula when they sell to organised dairies.

See also: Dairy Shed Design.

References

  1. Determination of Dairy Milk Price on the Basis of Fat and SNF in India. Pashudhan Praharee.
  2. Milk Collection System and Pricing Policies. IASRI e-courses.