New Delhi, Nov. 6 With global milk powder prices hitting a 15-month high, the overall dairy scenario has undergone a sudden change, significantly impacting the milk supply dynamics in India as well.
For the current month, the average price of whole milk powder (WMP) in globalDairyTrade — the Internet-based sales platform of the world’s No. 1 milk processor, Fonterra — stood at $3,437 a tonne, ex-New Zealand ports.
This is the highest level touched since the $3,705 a tonne hit for August 2008 and an 88 per cent jump over the low of $1,829 reached only four months back. The turnaround has been ascribed mainly to increased demand from food processors on the back of a general global economic recovery.
The improved buying sentiment has also been buttressed by production declines in Western Europe, Australia and the US, resulting from farmers rationalising herd sizes in response to milk prices plunging earlier this year. The US alone expects milk output to fall in 2009 and 2010 — its first back-to-back decrease since 1969.
To top it all, the European Commission has scaled back export subsidies that it had earlier reactivated in January. On October 22, the refunds on skimmed milk powder (SMP) shipments were slashed from 228 to zero euros a tonne, while being halved to €175 for WMP and reduced from €787.1 to €456.5 for butter oil.
Imports ruled out
How does all this affect India? For one, it virtually rules out any import options. During this calendar year, the country has so far imported around 20,000 tonnes of butter oil at landed prices starting at $1,700-1,800 a tonne.
Today, the same oil from New Zealand is quoting at over $4700 a tonne or Rs 220 a kg, which, after including 30 per cent import duty and port handling charges, would be way above domestic ex-factory ghee prices of Rs 240 to Rs 270 a kg.
Likewise with powder, where, only three months back, the National Dairy Development Board was planning to import 10,000 tonnes of SMP. At that time, SMP of East European origin was available at $1,800-1,900 a tonne, translating into under Rs 100 a kg after adding the 5 per cent import duty. Prices have since hardened by some $1,000 a tonne, pushing it above the ruling domestic SMP price of Rs 125-130 a kg.
Export options open up
In fact, the situation has now changed to make dairy exports feasible at the margin, more so for casein (milk protein).
The last three months have seen nearly 3,000 tonnes of casein being shipped out, with prices going up from $5,200 to $7,000 a tonne (free-on-board, Mumbai) and exporters additionally availing themselves of a 9 per cent duty entitlement pass book (DEPB) benefit.
To produce one kg of casein, a dairy consumes an estimated 35 litres of milk. The 3,000 tonnes exported largely from North India during August-October would have, thus, consumed 105 million litres or over 11 lakh litres per day (LLPD). That would amount to over 40 per cent of the 26-27 LLPD milk that Mother Dairy is currently marketing in Delhi.
“The Government may have to reconsider some of the export incentives, enabling casein producers to pay higher prices for milk than Mother Dairy and other liquid milk suppliers. The latter have, then, had to increase their procurement prices and pass it on to the consumer”, an industry source said.
The other side to this, however, is that milk prices for the farmer this time have not fallen as they usually do during the ‘flush’ winter season.
Source : Business Line