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Harish Damodaran

New Delhi, Oct. 5 With international prices weakening considerably in recent months, the domestic dairy industry is seeking a restoration of the import duty on milk powder to the earlier 15 per cent.

The Centre had, on April 29, slashed the basic customs duty on skimmed as well whole milk powder (SMP/WMP) from 15 to 5 per cent. That was the time when SMP prices globally were ruling in the $4,000 a tonne range, having scaled $5,000-plus levels.

Also, with domestic milk production entering the ‘lean’ phase, there was concern regarding the overall availability and price position.

“That situation no longer holds. On the other hand, global powder prices have crashed and, at the same time, the flush winter period has begun with animals (especially buffaloes) going to produce twice what they were in the lean summer. The time has come to restore the earlier import duty,” said Mr R.G. Chandramogan, CMD of the Rs 863-crore, Chennai-based Hatsun Agro Product Ltd.

SMP of Western Europe origin is being quoted at $2,500-3,000 a tonne (f.o.b.), as against $5,000-5,300 at this point last year. The declining trend is also reflected in globalDairyTrade, the online trading platform of the world’s No. 1 milk products exporter, Fonterra Cooperative.

In its latest internet auction on October 2, it announced an average sale price of $2,917 a tonne for WMP across all contract periods, while being even lower at $2,865 a tonne for December delivery.

The softening trend, from last year’s unprecedented highs, is being attributed to the ongoing global financial woes and concurrent demand slowdown, in combination with increased supplies particularly from the US. The bearish sentiment has been exacerbated by disclosures of criminal contamination of milk in China, which have made buyers further cautious in entering into deals.

“If WMP is at $2,865, you have to deduct at least another $150-200 for SMP after adjusting for lower fat, which comes to about $2,700 a tonne. And if it is SMP from origins such as Uzbekistan, you can probably source for as low as $2,500 a tonne,” noted Mr Chandramogan (WMP contains 26 per cent fat, against the 1.25 per cent for SMP).

At $2,500 and five per cent customs duty, the landed cost of imported SMP at current exchange rates would be in the region of Rs 123 a kg. On the other hand, domestic SMP is quoting at around Rs 125 a kg, though apparently not many purchases are taking place at this rate.

Besides bringing down import duty, the Centre had in April also withdrawn export benefits on dairy products, including the 5 per cent Vishesh Krishi Upaj Yojana concession on f.o.b. value of shipments. The fall in global prices has come as a double blow, more so for dairy exporters who had hedged at Rs 41-42 to the dollar anticipating a strong rupee.

More Stories on : Dairy & Dairy Products | Exports & Imports | Excise and Customs

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