Ice-creams not cheaper despite tax cut

Finance Minister P Chidambaram announced a reduction in excise duty on ice-creams in Budget 2006-07. however, consumers are yet to get a taste of reduced prices, with companies present in the region not having made any definite plans to pass on the benefits to the consumers.

Major players like Milkfed and Mother Dairy in the region have not yet taken a decision on the price cut.

Talking to Business Standard, Vikas Pratap, managing director, Punjab State Cooperative Milk Producers' Federation Limited (Milkfed), said, "In February, we decided to hike the prices from March 1, but now we are not going ahead with this decision. We will not be reducing prices as we have withheld the hike. It is difficult to reduce prices as the prices of raw materials like sugar have gone up. Moreover, the VAT has been increased from 4.5% to 12.5%."

"We are the major player in the northern region. In 2004-05, our total sales volume were about 9,84,000 litres. This year, we have sold more than 11,00,000 litres so far. We are aiming a sales figure of 12,00,000 litres by the end of this fiscal year," Pratap said.

"We are also developing new ice-cream variants to target different segments like the young adults. We have written to the Chandigarh administration to permit the presence of our booths in all the sectors," he added.

Local ice-cream players say the prices are already very low and there is no scope for further reduction.

"The cut in the duty would benefit only the large players whose annual sales are over Rs 1 crore. Prices of raw materials like cream and sugar have risen. So has service tax. Thus, the costs have actually gone up. Therefore, it is difficult to reduce the prices in future," says a city-based ice-cream company owner.

However, an official of National Dairy Development Board's Mother Dairy said, "We have reduced the price of some items last week. We are also considering reducing the prices of other articles. Even if we do not reduce the price, we may give the benefits to consumers by giving them more volume at same price."

"Following the budget sop, the Gujarat Cooperative Milk Marketing Federation (GCMMF) has taken the lead in reducing prices on Amul ice-creams as per the information. The 16 per cent excise duty on both the products is abolished and it would only translate to about 7-8 percent impact as the levy was imposed earlier only on 55 percent of the maximum retail price," said industry sources.

"The duty concession in both products will lead to production volumes going up. In the case of condensed milk, it is the confectionery industry, the largest consumer of this product, which will stand to benefit as the consumer segment is very limited. Many big players are still considering what strategy to adopt. Nevertheless, there will be some restructuring of prices," they added.

The Rs 800 crore plus ice-cream industry is said to be growing at a healthy double-digit rate of growth. The budget could have done more for the industry as the industry holds considerable export potential," the sources added.