To export or not: SMP rules the Milk prices

The domestic availability of Skim Milk Powder (SMP) is likely to hit as its procurement in the cooperative sector has not seen a significant rise proportionately. Infact, they have reported lower stock of SMP mainly because the country has seen a quantum jump in the export of Skim Milk Powder and Whole Milk Powder (WMP). At the same time, the international market also records increase in demand for SMP.

Under the current milk scenario in India, it is important to consider the factors which are gaining buzz in the policy corridors.

We reported earlier in the month that the PMO gave its consent to slap the export after agriculture minister Sharad Pawar mooted the proposal. Expected to be operative till August this year, the agriculture ministry planned to seek a formal approval of Cabinet Committee of Economic Affairs (CCEA) in this regard.

The move aimed at moderating the price of liquid milk in the domestic market as Mother Dairy reportedly increased the prices of liquid milk by one rupee early this week with many other companies having similar intentions for near future.

The meeting of CCEA scheduled for last week has been postponed and is expected early next month. And one can debate on the various measures to sustain the inter-ministerial wrangle making the white liquid remain white if not increase the whiteness. The Cabinet secretary,T.K Chturvedi moots on some viable options in line with the agriculture ministry.

Taking clue from the case of sugarcane exports, the ban on export of milk powder could be till the time there is satisfactory improvement in procurement. This move intended to improve the availability of SMP & WMP in the domestic market will also reduce their prices along with adding to the buffer stock in the cooperatives.

Though there will be increased amount of liquid milk for consumption in the domestic market but the fear that it will lead to lower income to the farmers cannot be ruled out. The farmers having no incentives to produce milk, the product will be converted into indigenous milk-based products in order to add value to a cheap product.

The loss in brand reputation of milk brands from many cooperatives will also have adverse effects leading to decline in volume & foreign exchange. The argument that the India's projected growth for exports in this product segment is around 12-15% does not hold true with the current statistics available. In fiscal 2005-06 India exported 62,000 MT of SMP but till December 2006, the export volume is only 12,000 MT which shows a clear lag in reaching the projected margin of at least 12% addition in volume.

Another sustainable thought could be that along with the export of milk powder the NDDB should import it under TRQ in order to maintain a buffer stock with the cooperative dairy federation. It needs to be recalled that towards the close of last year, the Cabinet Committee on prices allowed the import of 10,000 MT of milk powder under the TRQ with a subsidy. The reduced tariff rate applicable 5% from the earlier 15% in the TRQ scheme itself.

Apart from many merits which come with the ban on exports this measure will also maintain the brand reputation of cooperatives & private players exporting milk powder at present. Without disturbing the export-import balance, it will also protect the interests of farmers provided the import volume is used by the cooperatives in a phased manner. Since the CCP has already approved the subsidy under TRQ, so the loss on government's part is not an issue to be debated.

There is a firming up of SMP prices in the US/European markets % prices of SMP have gone up in the international markets from up to Rs 132-Rs 135 per kg during the last few months from earlier Rs 92. At this price the landing cost of SMP could be over Rs 150 per kg. It needs to be seen under this light if the import is feasible.

It is also a point to be noted that why the National Dairy Development Board, which is a nodal agency to maintain the import and domestic market buffer will take the arduous task of importing. The cabinet secretary sources also suggest that the task could be assigned to MMTC & STC.

Continuing with the subsidy factor, the 5% incentive under the 'Videsh Krishi Upaj Yojna Scheme' which the government of India gives for exporting milk powder can be reduced in order to marginally reduce the export volume.

This proposal will discourage the exporter and may turn out to be a futile effort in controlling the availability of milk powder in the domestic market.