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Harish Damodaran

New Delhi , Sept. 8

A CLEAR picture of the real reasons for the domestic shortage and skyrocketing prices of skimmed milk powder (SMP) is now emerging. And the evidence points towards a shortage largely man-made and a product of the deep fissures that have developed within the co-operative dairy `movement'.

The chief protagonists of this sordid drama have been the country's leading SMP supplier, the Gujarat Co-operative Milk Marketing Federation (GCMMF or Amul), and the biggest domestic SMP buyer, the National Dairy Development Board (NDDB)-owned Mother Dairy.

To understand how the schism between GCMMF and NDDB has contributed to the present situation, consider the magnitudes involved.

Of the 15-16 lakh kgs per day (LKPD) of milk that Mother Dairy sells in the national capital region, 30-40 per cent (average during the year) is milk reconstituted from SMP and other solids. In terms of SMP — one kg of milk is equivalent to 0.1 kg of powder — the requirement comes to 50-60 tonnes per day or 18,000-22,000 tonnes annually.

Simply put, of the 100,000-tonne domestic market for SMP (Rs 1,000 crore at today's prices), Mother Dairy's purchases accounts for roughly a fifth. At the other end is GCMMF, which annually sells 50,000 tonnes or meets half of the market requirement. Significantly, till last year, more than a quarter of GCMMF's sales (about 13,000 tonnes) were being made to Mother Dairy.

The latter, in turn, sourced most of its SMP requirement from Amul. In addition, Mother Dairy also bought 4,000 tonnes of whole milk powder and 500-1,000 tonnes of white butter from GCMMF, besides one LKPD of liquid milk, translating into another 3,500-odd tonnes of SMP per year.

It is in this context that Mother Dairy's abrupt decision to stop purchases of milk and powder from GCMMF with effect from January 1, this year, set off a panic reaction. With a 20,000 tonne assured market virtually disappearing overnight, Amul was forced to intensify its export focus. Indeed, of the 8,839 tonnes of SMP exported by it in 2002-03, as much as 3,442 tonnes was shipped during January-March. But even after this, GCMMF ended the financial year with stocks of 20,450 tonnes, marginally lower than the 21,595 tonnes as on March 31, 2002. The termination of business links between the country's largest seller and buyer of powder was proving costly.

For NDDB, however, the crisis arose when milk procurement by co-operatives during April-August this year was `discovered' to be around 3 LKPD lower. This was even as average sales had risen by 10 LKPD, leading to an overall shortfall of 13 LKPD or 130 tonnes of SMP. While the situation was ascribed to the cumulative impact of successive droughts, it still begged the questions: why was this possibility not anticipated at the time when Mother Dairy refused to renew its annual offtake agreement with Amul? Given Mother Dairy's own average 50-60 tonnes daily SMP requirement, a 130 tonne national-level shortage was bound to push up prices. Predictably, bulk SMP prices soared from Rs 65-70 in January to Rs 100 per kg by end-August, forcing NDDB to go back to GCMMF.

The gainer has been GCMMF, which was realising around $1,440 per tonne or Rs 70 per kg from exporting SMP during January-March, but is now selling the same here for Rs 95-100 per kg. GCMMF is today supplying daily 60 tonnes to Mother Dairy, 20 tonnes to the Delhi Milk Scheme and 10 tonnes to the Noida dairy of the Uttar Pradesh Federation, adding up to 9 LKPD of milk equivalent or almost half of Delhi' organised milk sales. Compare this to the position only a month ago, when it could not directly sell even one tonne!

But the story is not over. To hit back, NDDB is planning to import 6,500 tonnes of powder, which, it says, would be used to build a `strategic buffer'. It is a different matter that the imported material would cost about Rs 105 per kg, as against Rs 70, which Amul was realising on exports six months ago.

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