Milk Prices Likely To Rise Again After New GST Rates Applicable On THESE Dairy Products

New Delhi: In its 47th meet, the GST Council chaired by Finance Minister Nirmala Sitharaman has withdrawn exemptions from taxation on some food, including milk products like pre-packed, pre-labeled curd, lassi, and buttermilk. Now, these products will have a GST rate from the current NIL. The move is expected to push dairy companies to hike the prices of products to pass on the impact of additional costs.Also Read – Curd, Paneer, Wheat Now Expensive; 5 Per Cent GST to be Levied on Pre-packed And Labelled Food Items

In a latest research note, research Analysts, Aniruddha Joshi, Manoj Menon, Karan Bhuwania, and Pranjal Garg at ICICI Securities, said the GST rate on curd and lassi is expected to be levied at 5% from nil currently, according to a report by Mint. As per the analysts, the key risk of the move could be a higher-than-expected rise in milk prices, delay in price hikes, and irrational competitive pressures. Also Read – What Is GST Council And How Does It Work | Explained

“Considering the rising milk procurement prices as well as new likely levy of 5%, we believe dairy companies need to pass on additional costs to end consumers via price hikes,” Mint reported quoting the research note. Also Read – 6 Food Items That You Should Stop Eating With Curd

The researchers pointed out that curd is a major product for most dairy companies, and it, along with lassi account for 15-25% of the revenues of dairy companies under their coverage. However, the analysts do not expect any material impact on any dairy company.

Currently, both major products of listed dairy companies such as milk and curd are free from any GST rates. According to the analysts, with the likely levy of 5% GST on curd, dairy companies will be able to achieve input credit (packaging material, some raw materials, ad-spend, transportation and freight costs, etc). “We believe the net impact of GST levy will be in the range of 2-3%,” they said.

Explaining there will be limited impact in volume terms, the analysts said, “as most consumers boil milk before consuming it, they might still continue to buy unorganised milk. However, as consumers consume curd directly, they will prefer to continue buying organised curd, in our view. Hence, we see low possibility of losing curd volumes to unorganised players even with higher difference in pricing of organised vs unorganised.”

Notably, some dairy products like ice cream, cheese, ghee, and paneer are already under the GST ambit. With a likely levy of GST on curds and lassi, analysts believe most dairy products are under the GST umbrella. However, there is still no GST on packaged milk.