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 USD 3,437 a tonne, ex-New Zealand ports.

This is the highest level touched since the USD 3,705 a tonne hit for August 2008 and an 88% jump over the low of USD 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 USD 1,700-1,800 a tonne.

Today, the same oil from New Zealand is quoting at over USD 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.

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