In a bread machine bread recipe, why is milk powder included? And is milk powder needed?
I have baked several loaves without milk powder. When the bread is baking sometimes the loaf collapses with a 'crater' depression of about 3 cm.
Milk or milk powder are not strictly needed in bread recipes. There are many formulas that omit it: the minimal ingredients for a loaf are water, flour and yeast; salt is probably essential for a loaf that is tasty.
Milk (or milk powder) is a way of enhancing the dough to:
The use of milk powder as opposed to liquid milk may be just for convenience, or because there is sufficient hydration in the loaf from other reasons, so it avoids adding additional water as part of the milk.
You may choose to omit the milk powder, but you will lose its benefits. Instead, I suggest you find one of the myriad bread recipes designed for bread machines that doesn't include it if you don't want to use it.
The cratering issue is likely to be unrelated to milk or milk powder.
In the manual for my bread machine, the use of milk powder was said to be because the machine might be set to cook hours later via the timer and having the milk sitting on the counter for hours might lead to spoilage.
If you decide to use milk when making bread right away, you probably should reduce the water added an equivalent amount.