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Ghee prices dip on rising oil imports

Harish Damodaran

NEW DELHI, May 27

DOMESTIC prices of skimmed milk powder (SMP) may have hardened somewhat following the imposition of a tariff rate quota (TRQ) regime in June 2000, leading to a virtual import stoppage. But on the other hand, wholesale prices of ghee continue to rule easy , much to the discomfiture of the dairy industry and farmers.

The SMP prices have recovered from their previous year levels, especially from around August 2000. This has been largely due to the TRQ regime notified on June 12, last year, involving clamping of a 15 per cent customs duty on SMP imports of upto 10,000 tonnes during any year, with quantities beyond this attracting 60 per cent duty. Prior to this, SMP was freely importable at zero duty.

With this move, imports came to a standstill, leading, in turn, to higher domestic prices. Bulk SMP is now selling at Rs 74-75 per kg, as against roughly Rs 65 per kg during this time last year.

The story for ghee has, however, been quite the other way round. Average bulk ghee prices in Delhi stood at around Rs 128 per kg in 1998-99 and Rs 126 per kg in 1999-2000. But during 2000-01, these ruled at just Rs 112 per kg, crashing to Rs 100 in April 2001. Even premium `desi' brands such as Milkfood are now selling at Rs 1,700-1,720 per 15 kg tin, i.e Rs 113-115 per kg.

One reason for this divergent price movement in ghee and SMP may have to do with the so-called globalisation phenomenon. In most markets world over, the fat in milk always commands a lower price than solids-not-fat, i.e SMP. Currently, SMP of European or igin is quoting at $2,100-2,250 per tonne free-on-board, which comes to Rs 99-105 per kg. As against this, butteroil (99 per cent fat) is selling at $1,400-1,650 per tonne f.o.b, i.e Rs 65-80 per kg. Compare these to the corresponding Indian prices of Rs 74 per kg for SMP and Rs 113 per kg for ghee!

The decline in prices of ghee and the upward movement for SMP may, therefore, be reflective of a process where domestic prices are steadily getting aligned to world prices, thanks to globalisation. But there are seeming flaws in this argument.

Ghee, dairy industry experts would contend, occupies a `special place' in the country. The use of ghee -- both as a cooking medium as well as for spreading over chappatis -- is unique to the Indian tradition, unlike in the West, where people `make do' wi th vegetable oils (corn, soya or olive) for frying or with margarine and shortening for spread applications. Milk fat will, therefore, always fetch a premium here.

Even assuming that ghee is not all that `special', the fact is that butter oil imports have not been all that significant to back the globalisation argument. Annual imports have never exceeded 4,000 tonnes, which is negligible vis-a-vis domestic ghee out put of 10 lakh tonnes, including 1.5 l.t by organised dairies. In contrast, SMP imports of 17,753 tonnes in 1999-2000 on a production base of 90,000-100,000 tonnes would certainly have impacted on domestic prices.

The only way in which the globalisation route would have worked is through imports of edible oils -- particularly RBD palmolein -- and the increased substitution of the milk fat-based `desi' ghee by `vegetable ghee' or vanaspati. In a scenario where vana spati is consistently selling at Rs 30-35 per kg in the last 3-4 years, it would be difficult to expect consumers to be extra-loyal to the `real' desi ghee.

In fact, there have also been reports of rampant adulteration of desi ghee, with some unscrupulous traders even mixing upto 30 per cent of the cheaper vanaspati and adding a bit of chaach (butter milk) to generate the distinct ghee flavour during cooking .

This is similar to what has happened in coconut oil -- again considered as being `special' to the average Malayali. Here too, imports have hardly been to the tune of 7-8,000 tonnes. But the sheer inexpensiveness of imported RBD palmolein has forced a shi ft in consumer loyalty away from coconut oil even in Kerala.