The Hindu Business Line : Ghee, milk powder prices likely to remain firm

Flowing higher
Bulk SMP prices in Delhi have fallen from Rs 124-125 per kg to Rs 103-104 per kg.
SMP of Western Europe-origin is ruling at $2,850-2,950 a tonne against $2,125-2,300 at the start of the year.

New Delhi , Nov. 27

Prices of ghee and skimmed milk powder (SMP) have eased considerably over the last month. But they are likely to remain firm in the immediate term, given high international prices and low inventories with major domestic dairies.

Peak demand

Since the start of this month, bulk SMP prices in Delhi have fallen from Rs 124-125 per kg to Rs 103-104 per kg. A 15-kg tin of desi ghee, which was quoted in the wholesale market at Rs 2,300-2,310 (Rs 153-154 per kg), is now quoting at around Rs 1,910-1,920 (Rs 127-128 per kg). At their peak in October - the month of Dussera, Diwali and Eid - SMP rates had scaled Rs 129-130 per kg, with ghee almost touching Rs 2,500 or Rs 166 a kg.

"The peak festival demand is over. Also, the flush season (November-March, when milk production is generally 50 per cent more than in the lean summer/monsoon months) has started. So, it is natural to expect prices to ease," said Mr Kuldeep Saluja, Managing Director of Sterling Agro Industries Ltd, which makes "Nova" ghee and other dairy products.

More of correction

However, he felt that the decline was more of a "correction" from the abnormal levels of October. In fact, the average SMP price during November 2005 was Rs 84 per kg, while being Rs 118 per kg for ghee. Thus, on a year-on-year basis, prices (especially of SMP) are still high. Traders say they would rise again from mid-December with the marriage season, besides Christmas and New Year demand.

According to Mr B.M. Vyas, Managing Director of the Gujarat Cooperative Milk Marketing Federation (GCMMF or "Amul"), a major factor that would keep domestic rates firm is international prices. SMP of Western Europe-origin is currently ruling at $2,850-2,950 a tonne free on board (f.o.b), against $2,125-2,300 per tonne at the start of 2006. Oceania-origin powder prices have correspondingly gone up from $2,075-2,250 to $2,350-2,800 a tonne fob. On a year-on-year basis, European powder is higher now by around $700 per tonne, while being $250-450 per tonne more for Oceania-origin SMP.

Unfeasible imports

"At these levels, imports at 15 per cent customs duty are not feasible. And since Indian prices are now aligned to global prices, our realisations will continue to be good in the immediate term," Mr Vyas told Business Line. Dry conditions in Australia and soaring feed (particularly corn) costs have been the main drivers behind the increase in international dairy product prices.

The other factor, Mr Vyas emphasised, was low powder stocks with dairies here. "We had floods in Gujarat during July-August, which impacted milk procurement. Although our procurement is back to normal, much of it will go towards consumer products (butter, cheese, ice-cream) and liquid milk sales. We will not have enough surplus milk for converting into bulk SMP or ghee," he added.

With powder supplies from the country's largest dairy concern drying up, there would pressure on SMP stocks. Consumers, then, may have to pay more for their milk in the months ahead.

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