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Harish Damodaran

Diminishing gap in line with international trend

New Delhi , Jan 18

For generations, Indians have valued the fat in their milk much more than any other constituent. As a result, ghee has always commanded a premium over skimmed milk powder (SMP) or the non-fat solids portion.

But this equation is changing, courtesy globalisation. On Thursday, bulk SMP in Delhi was quoted at Rs 125 a kg, which is around 88 per cent of the corresponding Rs 142 rate for ghee. Till four years ago, this ratio hovered at 54-55 per cent.

The diminishing gap between ghee and powder prices is in line with the international market, where milk fat actually fetches a discount. SMP of Western Europe origin is now selling at $2,950-3,150 a tonne free-on-board, which is higher than the $2,200-2,500 for ghee (butter oil).

"The falling ghee premium is indicative of our dairy commodity prices getting aligned to world levels," said Mr B.M. Vyas, Managing Director, Gujarat Cooperative Milk Marketing Federation (GCMMF or `Amul'). According to him, one reason for this is the substitutability of ghee with vanaspati or other vegetable fats.

Vanaspati is currently wholesaling at roughly Rs 50 a kg — a third of the ruling rates for ghee. "There are limits to rise in ghee prices, as consumers become more selective in its usage and shift to vanaspati. Also, unscrupulous players get an added incentive to adulterate ghee with vanaspati or palm oil," Mr Vyas pointed out.

No easy substitution

On the other hand, there is no such easy substitutability for SMP, where the trigger for higher realisations has been world prices.

Drought conditions in Australia and lower-than-projected milk volumes in New Zealand, combined with the reduction in farm subsidies by the European Union, have pushed up SMP prices by $850-900 a tonne over the last year.

"Imports at these levels are not feasible. On the contrary, we have turned exporters and that, in turn, has driven domestic SMP closer to world prices," noted Mr Kuldeep Saluja, Managing Director, Sterling Agro Industries Ltd (`Nova' brand).

During 2005-06, the country exported 47,334 tonnes of SMP worth Rs 418.45 crore, besides shipping out 10,903 tonnes (Rs 281.87 crore) of casein, which is a powder derivative. All this has meant that since 2001-02, SMP rates have doubled, whereas ghee has only risen slightly over a quarter.

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