R.G. Chandramogan, Chairman, Hatsun Agro Products, has urged the government to do way with the practice of charging different rates of GST on milk fats and skimmed milk powder (SMP), both of which are milk products.
Milk is separated into two parts – SMP (skimmed milk powder) and milk fat. While milk fat is taxed at 12 per cent, SMP is taxed at 5 per cent GST. In India, milk fat has cross-subsidised SMP. This is the reason why the milk balance is maintained. As the price of milk fat goes up and it is taxed at a higher rate, there is a cap on its usage, which leads to lower production of SMP, which in turn inflates prices, he said at a Breakfast with businessline event, in which the Finance Secretary, TV Somanathan, answered questions from industry leaders on the recent Union Budget.
SMP is used in preparing items such as biscuits and bakery products, while milk fat is used to make ghee and butter. When milk is in short supply during summer, both products are blended to produce milk, a process called ‘reconstitution.’
Chandramogan said 2023 is the first full year after two years of Covid sufferings. During Covid, e hotels and tea shops remained closed. Inflation in the current year is close to 16 per cent over the past 10 months. Farmers had not been maintaining and feeding their animals properly during Covid, which has made them less productive. In another two months, with better feeding and better prices due to inflation, supply will revert to normalcy.
A major anomaly is cross-subsidising SMP with higher milk fat prices, compared with the international market bringing a balance. Today, a kg of SMP costs ₹340, as against milk fat at ₹525 before tax. Taxation on SMP is ₹17 per kg, and for fat ₹63 a kg, he said.
Milk fat is a natural hedge to SMP. Adding packaging, transport and trade margins makes it dearer for the consumer, he said.
Due to the above reasons, the demand for ghee or butter comes down, resulting in less demand for fat, and SMP being a twin product is produced in lower quantities due to the lack of demand for milk fat and short supplies of SMP leads to inflation, he said.
“The remedy is to tax ghee or butter at the same level of 5 per cent GST. Milk fat can cross-subsidise and keep both prices stable,” he said.
Hatsun, India’s largest private sector dairy company, caters to both cooking and consumption demand for milk, curd, ice creams, dairy whitener, skimmed milk powder, ghee and cheese.
For the quarter ended December 31, 2022, the company reported a net profit of Rs 46 crore on revenue of Rs 1,695 crore. For the year ended March 31, 2022, the company reported a net profit of Rs 217 crore on revenue of Rs 6,370 crore.
The company’s share price on the BSE closed at ₹885.35, up by ₹1.90.
Source : The Hindu Businessline Feb 14th 2023