KATHMANDU: Private dairies in Nepal are in deep financial trouble due to a continued slump in the dairy sector. They have made an urgent appeal for subsidized loans amounting to nearly Rs3 billion from the government to be able to pay pending dues to farmers. Demand for its products has remained stagnant at home, and a saturated stock of powdered milk, butter, and cheese has made life difficult for the sector.

The government had recently sanctioned an Rs300 million soft loan to the beleaguered state-owned DDC in a bid to reduce its financial burden amidst protests by dairy farmers. The officials hinted that an additional Rs600 million is being readied for release to the DDC to provide further capital support to its operations.

Prahlad Dahal, president of the Nepal Dairy Association, said that financial support was necessary to write off the unsold inventory which had built up cash flow problems, making it difficult for dairies to pay farmers. The association has been demanding a soft loan from the Ministry of Agriculture and Livestock Development where dairy products will be pledged as collateral. The association has also been demanding permission to export surplus stock in order to improve liquidity.

The situation underlines broader economic challenges hitting dairy demand and has been made worse by a recent hike in the price of raw milk. According to the association representing the farmers, outstanding payments to farmers since then shot up to around Rs4.50 bln as the industry struggles to clear the increasing debt progressively.

The dairy industry has occupied a very significant place in Nepal's economy, sustaining the livelihoods of about 600,000 families and around 45,000 employees. Its vitality is reflected in huge day-to-day cash flows from town to village and substantial monthly revenue collections for the government.