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Harish Damodaran

NEW DELHI, Sept. 15

HIGH edible oil (`vegetable fat') prices seem to have rubbed off on ghee (`animal fat'), with market sentiments in the latter showing marked improvement over the last 3-4 months.

Open market prices of desi ghee had plummeted to as low as Rs 1,540 per 15 kg tin (around Rs 103 per kg) in mid-March, this year. But since then, they have hardened considerably, touching an all-time high of Rs 2,300 per tin (Rs 153 per kg) in early August. The average prices in August were around 40 per cent higher than that during March.

Although ghee prices have come down from their peak August levels to Rs 1,870-1,880 per tin (Rs 123-125 per kg) now, traders here say that the sentiment is unlikely to undergo change in the approaching festival season.

The increasing trend in wholesale ghee prices since the beginning of this fiscal is being ascribed mainly to three reasons. The first is the decision to raise the basic customs duty (BCD) on butter oil from 30 per cent to 40 per cent, as part of the amendments to the 2002 Finance Bill moved on April 26. Inclusive of the four per cent special additional customs duty (SACD) component, the effective import tariff hike was from 35.2 per cent to 45.6 per cent.

Prior to this, the Union Budget had originally proposed a reduction in the BCD on butter oil — which is a ghee substitute — from 35 per cent to 30 per cent. While the proposed duty cut had led to a crash in domestic ghee prices, the subsequent decision to not only roll back but also to effect an increase in BCD, however, bolstered sentiment in the commodity.

The second reason for rising ghee prices has to do with the aberrant southwest monsoon. The extended dry spell, especially in July, is said to have resulted in severe fodder shortage. This, in turn, meant a decline in milk procurement — estimated at 25-30 per cent in many States — by dairy plants.

``Since the dairies, particularly the cooperatives, could not have cut back on supply of liquid milk to urban centres, they preferred to channelise the bulk of their milk procured for this purpose rather than for producing ghee, butter and other products'', an industry source noted. The end result: skyrocketing ghee prices.

However, with the rainfall activity reviving since mid-August and the fodder supply situation improving, prices have eased somewhat in the last 10 days. They are expected to `settle' at existing levels, with the festival demand during Dusshera and Diwali likely to prevent any slide.

Besides higher import duty on butter oil and drought, there is a third reason for high ghee prices, which is seen to be linked to the bullish sentiments in edible oils (especially vanaspati).

Vanaspati prices (tax-paid) are currently ruling at Rs 625-680 per 15-litre tin, as against Rs 510-575 per tin in early March. Wholesale RBD palmolein prices, too, are now ruling at around Rs 35,000 per tonne, compared to the average March rate of Rs 29,000 per tonne (they were, in early 2001 ruling at a level of Rs 22,000 per tonne).

Although milk fat has traditionally commanded a premium over

vegetable fat in the country — unlike in the West, where people `make do' with soya, corn or olive oil for frying and with margarine and shortening for spread applications — the prolonged period of rockbottom RBD palmolein prices is believed to have led to rampant adulteration, if not substitution, of `desi' ghee by `vegetable ghee' or vanaspati.

But with prices of vanaspati and vegetable oils recovering, consumers may no longer be motivated to shift away from the `real' ghee, pushing up demand for the latter.

This, coupled with production shortage, is seen to be responsible for the hardening of ghee prices.

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