Daily News Analysis

Dairy Sector  

1st January, 2022 Economy

Figure 2: No Copyright Infringement Intended

Context:

  • India and Australia have been in discussion for concluding a Comprehensive Economic Cooperation Agreement (CECA) by the end of 2022.
  • With indications of such a CECA allowing for the opening up of India’s dairy sector for Australian dairy majors, Bharatiya Kisan Union (BKU) has stated that it will oppose any such move.

Arguments of the Dairy Sector:

Flooding of cheap dairy imports:

  • The opening up of the dairy sector to foreign dairy majors could result in the flooding of cheap dairy imports into India. As a result, its impact on Indian dairy product prices would be significant and this will definitely undermine the domestic players in the sector.

Price realization by Indian farmers:

  • The private milk companies would find it far more profitable to import milk from Australia or New Zealand rather than buy it from Indian farmers. In such a scenario, the sale price of milk received by Indian farmers would fall sharply.
  • The unit cost of milk production is relatively low in countries like Australia because of extensive grazing lands (which reduce feed costs), mechanised operations and the advantages of economies of large-scale production, and the high productivity of milch animals (about 30 L/day).

Unequal competition:

  • The government policy in countries like Australia has consciously helped their major dairy companies become major global players.
  • On the contrary, India’s dairy sector is composed predominantly of small producers.
  • In 2017, if the average herd size in a dairy farm was 191 in the U.S., 355 in Oceania, 148 in the U.K. and 160 in Denmark, it was just 2 in India.
  • This unequal competition will only undermine the operations of the Indian domestic players.

Concerns over livelihood:

  • India’s dairy sector provides livelihood to about 70 million households.
  • Many small farmers are dependent on dairy work and opening the sector to foreign countries like Australia will hurt millions of farmers and dairy workers.

 

Associated issues with Dairy Sector:

Invisible Labour: 

  • Farmers keeptwo to five in-milk animals for livelihood. In this setup, unpaid female family labour supplies a major part of the labour requirement for milk production.
  • The landless and marginal farmers among them have no livelihood options to fall back when they fall short of buyers for milk.

Informal Nature of Dairy Sector: 

  • Unlike sugarcane, wheat, and rice-producing farmers, cattle raisers are unorganised and do not have the political clout to advocate for their rights.

Lack of Remunerative Pricing:

  • Though the value of milk produced outweighs the combined value of the output of wheat and rice in India, there is no official and periodical estimate of the cost of production and Minimum Support Price for milk.

Negative Impact of Economies of Scale: 

  • Even though dairy cooperatives handle about 40% of the total marketable surplus of the milk in the country, they are not a preferred option of landless or small farmers.
  • This is because more than 75% of the milk bought by dairy cooperatives is at its lower price band.

Dairy sector of India

  • World’s largest dairy herd: India has the world's largest dairy herd with over 300 million bovines, producing over 187 million tons of milk.
  • Production: India's milk production is growing by 35.61% during the last six years to 198.4 million tonnes in 2019-20. The rural sector has an estimated share of 57 per cent in the total consumption.  India continues to be the largest producer of milk in the world. Uttar Pradesh, Rajasthan, Madhya Pradesh, Gujarat, Andhra Pradesh and Punjab continued to be the major milk-producing states.
  • Self-sufficient: India is first among all countries in both production and consumption of milk. India is largely self-sufficient in milk production.Domestic consumption: Most of the milk is domestically consumed, though a small fraction is also exported.
  • GDP: As of 2020, approximately 4.2% of India's gross domestic product was due to dairy production.
  • Indigenous breeds: The population of indigenous breeds of cattle have steadily been decreasing, while that of the more productive exotic and crossbred breeds has been increasing.
  • Contribution of Dr Verghese Kurien: India's success story in milk production was scripted by Dr Verghese Kurien, known as the "Father of the White Revolution'' in India

Way Forward

Increasing Productivity: 

  • There is a need to increase the productivity of animals,also ensuring better health care and breeding facilities and management of dairy animals. This can reduce the cost of milk production.
  • Also, milk production and productivity can be enhanced by ensuring the availability of veterinary services, Artificial Insemination (AI), feed and farmer education.
  • The Government and dairy industry can play a vital role in this direction.

Augmenting Production, Processing and Marketing Infrastructure: 

  • For India, to emerge as a dairy exporting country:
  • It is imperative to develop proper production, processing and marketing infrastructure, which is capable ofmeeting international quality requirements.
  • Further, to address the infrastructure deficit in rural areas and address the power shortage, there is a need to invest in solar powered dairy processing units.
  • Also, there is a need to strengthen dairy cooperatives. In this pursuit, the government should promote farmer producer organisations.