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Harish Damodaran

NEW DELHI, March 11

WITH domestic prices of ghee and skimmed milk powder (SMP) ruling at six-year-lows, dairies are now finding it much more profitable to market liquid milk, instead of losing money on traditional `value-added' products.

A 15-kg tin of `Milkfood' brand desi ghee was quoting on Monday at Rs 1,540 (Rs 102.66 per kg) in Delhi, compared to Rs 1,630 (Rs 108.66 per kg) a month ago. The corresponding price of SMP, sold in loose, was Rs 55 per kg. At these levels — the lowest in the last 5-6 years — production of ghee or SMP is actually leading to `value subtraction', with plants not even recovering their raw material cost.

To illustrate, one has to only examine the economics of selling `full-cream' milk containing 6 per cent fat and 9 per cent SNF (solids-not-fat) directly, as against converting it into ghee and SMP. Milk unions in Gujarat affiliated to Amul are currently procuring milk from farmers at an average rate of Rs 185 per kg of fat, which, after adding cost of transport from the village society, comes to Rs 192 per kg at the dairy dock.

Thus, the effective cost of procuring 100 kg of full cream milk works out to Rs 1,152, i.e Rs 11.52 per kg or Rs 11.84 per litre (one litre of buffalo milk is equivalent to 1.028 kg). This is more-or-less what most organised dairies in the country pay for their milk, give or take Rs one per kg/litre. One may now look at what a dairy would realise if the entire milk is converted into ghee and SMP.

Assuming complete recovery _ in reality, plants recover only 96-98 per cent of fat and SNF after drying _ the dairy would be able to sell 6 kg of ghee and 9 kg of SMP for every 100 kg of milk processed. At current market prices of Rs 55 and Rs 102.66 per kg (inclusive of various local taxes), the corresponding ex-dairy plant realisation is around Rs 50 per kg for SMP and Rs 90 per kg for ghee.

Even one takes a higher ex-dairy price of Rs 60 per kg for premium powder brands such as Amul, the combined realisation on 9 kg of powder and 6 kg of ghee would be just Rs 1,080, which is below the cost of milk (Rs 1,152). The losses are still higher if one also factors in costs of drying, consumption of steam and other utilities.

On the other hand, if the dairy were to directly sell the milk in pouches, the only additional expenses it would incur, apart from the procurement cost of Rs 11.84 per litre, are around Rs one per litre on processing (covering pasteurisation, labour charges, etc), Rs 0.50 on packaging and Rs 1.50 on distribution.

Considering that full-cream milk is now selling at Rs 17 per litre in Delhi, the dairy can make a margin of at least Rs 2 per litre. In Mumbai, where consumers are paying up to Rs 22 for a litre of buffalo milk, the margins would be even higher.

No wonder, fluid milk has emerged as the most dynamic segment of the domestic dairy business, with Delhi alone today having 20 brands, including Mother Dairy, DMS, Paras, Parag and Milkman, besides lesser known names such as Gopaljee, Madhusudan, Param and Balgopal. Similarly, as many as many as 36 milk brands have flooded the Chennai metro area in the last five years, ending the state-owned Aavin's hitherto unquestioned monopoly. ``A dairy today has to be either in the liquid milk business or produce real value-added products as cheese, ice-cream, casein, lactose or whey protein concentrates. Those in the bulk commodity line of ghee and powder are unlikely to survive,'' Mr Deepak Jain, Director, Baramati-based Dynamix Dairy Industries Ltd, pointed out.

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