The Hindu Business Line : <I>Dairies can't afford to under-price cow milk</I>

An important effect of lower ghee premium is that dairies cannot afford to under-price cow milk to the extent they are doing now vis-à-vis buffalo milk.

Buffalo milk typically contains 7 per cent fat and 9 per cent solids-not-fat (SNF), while in cow milk these are at 4 per cent and 9 per cent, respectively.

Dairies, currently, buy buffalo milk from farmers on a per kg fat basis. Taking an average rate of Rs 200 per kg fat, the corresponding milk price is Rs 14 per kg (200 x7/100) or Rs 14.4 per litre (one litre of milk equals 1.03 kg).

Cow milk pricing is somewhat more complex, given that the SNF content is valued at only two-thirds that of fat. As per this formula, buffalo milk will have 13 fat equivalent units or FEU (7 plus 2/3x9), whereas it is only 10 for cow milk (4 plus 2/3x9).

The Rs 14 per kg buffalo milk price is first converted into an FEU rate, which comes to Rs 107.7 (14 divided by 0.13). The cow milk price is, then, arrived at by multiplying this over 10 FEUs and it works out to Rs 10.77 per kg (107.7x10/100) or 11.1 a litre.

Simply put, a farmer selling a litre of buffalo milk gets an extra Rs 3.3 over his cow milk-supplying counterpart. The difference is mainly due to the SNF being valued at only two-thirds that of fat. But in a scenario, where ghee prices are approaching that of skimmed milk powder, dairies may be forced to reconsider this equation and reduce the bias against cow milk.

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