September 11, 2007

 

Possible ban on skimmed milk exports pull down India's milk prices

 

 

A possible extension of the ban on skimmed milk powder (SMP) exports beyond this month has led to a dramatic drop in India's milk prices.

 

Private dairies in the North are currently paying Rs15 (US$0.37) to 15.50 (US$0.38) for a litre of buffalo milk containing 6.5 percent fat and 8.5 percent solids-non-fat (SNF) delivered at their dock. The same milk was being sourced at Rs 19 to Rs20 a litre in July.

 

Kuldeep Saluja, Managing Director of the Delhi-based Sterling Agro Industries Ltd said for the past two months, milk prices dropped to Rs4 per litre and prices have gone down by Rs1.50 a litre last week.

 

He attributed the fall to the decline in realisations from products and speculation over the ban on SMP exports continuing beyond September 30.

 

SMP is now fetching Rs 105 a kilogramme (kg), against Rs 145 in July. Over the same period, ghee prices, too, have reduced from Rs 155 to Rs 125 a kg.

 

Saluja said milk producers are left with no choice but to lower milk prices when product prices fall.

 

All the big northern private dairies - Sterling Agro ("Nova" brand), VRS Foods ("Paras"), Bhole Baba Milk Food Industries ("Krishna") and SMC Foods ("Madhusudan") - are currently operating at 40 to 50 percent capacity.

 

Saluja said even at Rs 105 a kg, there are no takers for SMP. If the export ban does not go by September-end, producers in for "real trouble", he warns, as a dairy were to process 100 litres of buffalo milk or 103 kg (one litre equals 1.030 kg), it would get about 6.6 kg of ghee and 8.6 kg of SMP.

 

The combined realisation from both at present prices would work out to around Rs 1,730. If conversion costs at the rate of Rs 2a litre are deducted, the net realisation (without accounting for depreciation, interest and other expenses) drops to Rs 1,530.

 

If the ban on SMP exports, in place since February, is lifted, dairies would be able to realise upwards of Rs 160 a kg. With New Zealand powder for November being quoted at US$4,300 a tonne, Indian SMP would fetch about $4,100 free-on-board.

 

US$1 = 40.60s Indian Rupees