Ban on milk powder export overrides letters of credit

The notification of ban on skimmed milk powder (SMP) export, issued on Friday, has apparently prevented companies from exporting even those quantities for which letters of credit (LCs) were issued before announcement of the ban on February 1.

According to industry sources, LCs for export of about 6,000 tonne was issued before the announcement. The country exported 50, 510 tonne of SMP in 2005-06.

The transitional arrangements under para 1.5 of the foreign trade policy (2004-2009) shall not be applicable for export of SMP, said the notification.

"We obtain LCs for the commitments that have been undertaken. We expected government to honour the LCs even as it banned export", said an industry source.

Last year, when the government banned export of pulses and sugar, the notification had a clause implying exemption to those LCs that had been issued before to announcement of the ban.

"We have previous rulings that allowed export of quantities for which letter of credits were issued before announcement of ban. We will approach the Ministry of Commerce to get the issue addressed", said Kuldeep Saluja, managing director of Sterling Agro Industries that sell milk under the Nova brand.

"While the government has banned exports to check rising prices, it is surprising the 60 per cent duty on milk import continues", added Saluja. The ban is in place till September 30.

Meanwhile, prices of skimmed milk powder (SMP) in the domestic market declined 12 per cent since the ban was announced. SMP prices in Delhi are ruling at Rs 110 a kg, down Rs 15.

"With the advent of summer, milk supplies will be down and this will help arresting the price decline. SMP should stabilise at prices little above Rs 100 a kg", said Brijesh Gupta, vice president, Param Dairy.

SMP manufacturers have also cut production by 40 per cent following the ban. "We have orders in hand, but we cannot export. The domestic market has crashed, and our profits have been hit. Therefore, we have cut our production by 40 per cent", said Saluja.