The Hindu Business Line : Milk powder prices spurt on low stocks

THE COMING summer may see a repeat of the severe milk shortage that hit many parts of the country in mid-2003, forcing the National Dairy Development Board (NDDB) to import 10,000 tonnes of milk powder at a very high cost.

Prices of skimmed milk powder (SMP) have crossed Rs 90 a kg in Delhi, a level unheard of at this time of the year. October to February is the `flush' season for milk, when production is usually 50 per cent higher than in the `lean' summer months. "Prices should normally be in the Rs 70-range now. Instead, over the last month alone, they have shot up by Rs 10," trade sources pointed out.

The main factor for rise in prices, they said, is the low powder stocks with dairies, which are used for recombining into liquid milk in the lean season. The NDDB-owned Mother Dairy, which sells some 20 lakh litres a day (LLPD) in Delhi (the country's largest milk market), is currently reported to be holding hardly 800 tonnes of SMP. Last year, at this time, it had inventories of over 10,000 tonnes.

Mother Dairy procures 16-17 LLPD of milk during the flush season, which, in the lean months, falls to 10-11 LLPD. It meets the deficit (3-4 LLPD in flush and 9-10 LLPD in lean) by purchasing powder, amounting to around 25,000 tonnes every year. One tonne of SMP roughly yields 10,000 litres of milk.

The country annually produces 1.5-1.6 lakh tonnes of SMP, of which the Gujarat Cooperative Milk Marketing Federation accounts for almost 1 lakh tonnes and the rest comes from other cooperative and private dairies.

The reason for shortages this year, the sources noted, were two-fold. The first is the large-scale export of casein and SMP. During 2004-05, India exported Rs 400 crore worth of dairy products, including Rs 210 crore of casein. The figure is is expected to double this fiscal, with the export of casein touching 15,000 tonnes and powder another 30,000 tonnes. With export realisations on casein averaging $6,500 a tonne free-on-board, companies like VRS Foods, Mahaan Proteins, Cepham Milk Specialities and Dynamix Dairy Industries are making a killing. The main exporters of SMP are GCMMF, Sterling Industries and the Karnataka Milk Federation.

The sources said the export boom is leading to significant diversion of milk. But an equally important reason is the fact that cooperative dairies, especially in the North, are not offering good prices to farmers. This is reflected in Mother Dairy's procurement from State federations, which was hovering 1.5-2 LLPD below last year. The federations are, in turn, blaming Mother Dairy. "Between 2000-01 and now, we have been supplying full cream milk to Mother Dairy at Rs 14, whereas it has revised its own rate to consumers from Rs 16 to Rs 19 a litre. If our prices had gone up correspondingly, we could have pumped an extra Rs 100 crore every year to our farmers, which would translate into higher procurement," a federation official complained.

The present situation may prompt NDDB to consider the import option yet again. But with global prices ruling above $2,200 a tonne and a 15 per cent customs duty, the landed cost of imported SMP would be no less than Rs 115 a kg.

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