The decision to reduce the profit margin on milk from a maximum of 41% to 14% should make consumers happy while giving a hard time to importers. The minister of Commerce and Industry is firm: the profit margin has so far been excessive. Cabinet made the decision in the light of a study by the ministry’s technicians. “The decision has been made not to fix the selling price of powder milk but to guarantee to all parties concerned a profitability based on a system of maximum mark-up.” This decrease in the profit margin could lead to a drop in the price of milk of up to Rs 22 per kg.

Many consumers have been surprised by the regular increases in the price of milk during the past months. What made it even more astonishing was that this product is exempt from import customs taxes, which should prevent prices from constantly rising. This cabinet decision may make customers wonder why prices are so high and they may become suspicious towards importers. The latter have indeed been accused of artificially inflating prices.But the importers say in their own defence that the constant appreciation of the dollar and increases in the price of milk in Australia and New Zealand are the main factors explaining the rise in price on the local market. Likewise, even if they concede that milk does not carry any value added tax (VAT), this is not the case for the packing process and the retail price takes all this into account.

Such a decrease could however lead to a situation of monopoly. Small firms, which control 15% of the market, could disappear while the two major companies – New Zealand Milk with Anchor and Red Cow (60%) and Happy World Foods with Twin Cows (25%) would then control the whole sector.

The solution may come from India. This country is known for quality and tasty dairy products, which should cost less than those of Australian or New Zealand. The State Trading Corporation is already taking steps to start importing milk and dairy products from India. However, some stakeholders say Indian products are not that competitive. Some even claim that prices in India are comparable or even higher than those in Australia.