INDIAN DAIRY INDUSTRY : PROSPECTS , OPPORTUNITIES  & CHALLENGES

INDIAN DAIRY INDUSTRY : PROSPECTS , OPPORTUNITIES  & CHALLENGES

The dairy industry is one of the most important constituents of agriculture and animal husbandry sectors in India. It is a source of income for millions of rural households. Justifiably, it holds a vital position in India’s economy map.

Present Overview of Indian Dairy Sector –

India ranks first among the world’s milk producing nations since 1998 and has the largest bovine population in the world. India’s marketing year (MY) 2022 (January-December) fluid milk production is forecast higher at 203.5 million metric tons (MMT) based on a relatively normal June-September monsoon season. Anticipating strong prices and modest export demand, butter exports will rise to 15,000 metric tons (MT), 36 percent higher than the revised estimated export figure of 11,000 metric tons (MT) for MY 2021. With the same assumptions, skimmed milk powder (SMP) exports are forecast to increase to 20,000 MT, 11 percent higher than the revised estimated figure for MY 2021. Butter and SMP estimated export figures have been revised to match with trade data. Since milk production is growing in tandem with domestic consumption, any uptick in future demand for milk-based products may lead to a general expansion in dairy imports. Fifty-four percent of milk production is marketed through milk cooperatives and/or unorganized players such as milkmen, and contractors. India’s five largest milk-producing states, accounting for over half of the national production, include Uttar Pradesh (16 percent), Rajasthan (13 percent), Madhya Pradesh (9 percent), Andhra Pradesh (8 percent), and Gujarat (7 percent). Forty-nine percent of India’s milk production comes from water buffalos: 35 percent from indigenous water buffalos and 14 percent from non-descript buffalos (i.e., animals not selected or bred for milking purposes). The state of Uttar Pradesh holds 33 percent of India’s water buffalo herd, followed by Rajasthan (12.5 percent) and Madhya Pradesh (10 percent).

This represents sustained growth in the availability of milk and milk products for our growing population.

Global Production Scenario:

Aspects related to global milk production are given as follows: World’s top ten milk producing countries (2017)

Countries   Production (in million tonnes)   % of global production

India 176.27                                              21

United States 97.76                             12

Pakistan 44.29                                            5

China 34.87                                         4

Brazil 33.74                                 4

Germany 32.69                            4

Russian 31.18                             3.7

France 25.28                    3

New Zealand 21.37                 2.5

Netherland 14.54                  1.7

Total global production* 827.88 100 *including all the countries, all figure from 2017, source: FAO

Approximately 150 million households around the globe are engaged in milk production. In most developing countries, milk is produced by smallholders, and milk production contributes to household livelihoods, food security and nutrition. Milk provides relatively quick returns for small-scale producers and is an important source of cash income. · With an estimated milk production of 187.7 million tonnes, an increase of about 6% over the previous year, India continued to be the largest milk producing nation. The per capita availability of milk increased to 374 grams per day. · In the last three decades, world milk production has increased by more than 58%, from 522 million tonnes in 1987 to 828 million tonnes in 2017. · India is the world’s largest milk producer, with 21% of global production, followed by the United States of America, China, Pakistan and Brazil. · Since the 1970s, most of the expansion in milk production has been in South Asia, which is the main driver of milk production growth in the developing world. · Milk production in Africa is growing more slowly than in other developing regions, because of poverty and – in some countries – adverse climatic conditions. · The countries with the highest milk surpluses are New Zealand, the United States of America, Germany, France, Australia and Ireland. · The countries with the highest milk deficits are China, Italy, the Russian Federation, Mexico, Algeria and Indonesia8 . The dairy products are currently consumed all across the world. Milk products like cheese, Skimmed Milk Powder (SMP) are traded globally. In 2017, over $45 billion worth of dairy products were exported, a significant increase from about $39 billion in the previous year. The European Union (especially countries like France, Ireland, and Germany renowned for their cheese and butter), have a 39% share of the global dairy product export market, the largest of any world region. The major chunk of milk produced in New Zealand and Australia (Oceania region) is exported. Despite being the biggest producer of milk, India has negligible presence in global dairy trade.

 

Trends of Milk production, procurement and value added products by the Cooperatives and organized Private Sectors in India

Dairying has become an important secondary source of income for millions of rural families and has assumed the most important role in providing employment and income generating opportunities, particularly for marginal and women farmers. Most of the milk is produced by animals reared by small, marginal farmers and landless labourers. Of the total milk production in India, about 48% milk is either consumed at the producer level or sold to non-producers in the rural area. The balance 52% of the milk is marketable surplus available for sale to consumers in urban areas. Out of marketable surplus it is estimated that about 40% of the milk sold is handled by the organised sector (16.93 million farmers have been brought under the ambit of about 1,90,516 village-level Dairy Corporative Societies (DCS) up to March 2019 10 . The cooperative milk unions collectively procured an average of 507.69 lakh kg of milk per day in 2018-19 as compared to 475.29 lakh kg per day in the previous year, with a growth of about 7%. The sales of liquid milk reached 354.53 lakh liters per day, which is marginally higher than that in 2017-18. As on March 2019, the total number of women members in dairy cooperatives across the country was 5.06 million, representing almost 30% of the total membership.

 

Export Trends for Dairy Products of India

In India milk production is growing by 6.4% during the last five years and has increased from 146.3 million MT in 2014-15 to 187.7 million MT in 2018-19. However, India exports a relatively smaller volume of dairy products and has a small share in global dairy trade despite being the largest milk producer in the world. Dairy products exported from India are mainly Skimmed Milk Powder (SMP), butter, butter oil, cheese, ghee and butter milk. SMP has share of around 30% in the exports of the dairy products from the country. The major export destinations for dairy products are Turkey, United Arab Emirates, Egypt, Bangladesh, Bhutan, the United States, Saudi Arabia and Malaysia.

 

Broad Profile of Private Sector in Dairy Sector of India & Its Role in Boosting Processing in the country

 

Consequent upon the opening up of the Indian economy in the 1990s, there has been increase in private sector participation in dairy processing. However, unlike the processing capacities created by cooperatives, there has not been any comprehensive data on the milk processing capacities of the organised private sector. Food Safety and Standards Authority of India (FSSAI) has data on registration and licensing on dairy plant capacity in dairy sector, but it is not desegregated into private and cooperative sectors. As per the NDDB annual report (2018-19), the cooperatives across the country have milk processing capacities of 882 lakh litres per day (LLPD) which implies that cooperatives process about 33 MT of milk annually. At present, there is no data available on the milk processing capacity created by the organised private sector. According to an NDDB presentation dated August 26, 2014 (‘Status of Milk Processing Infrastructure of Dairy Cooperatives’), the registered processing capacity of private dairies in 2010-11 at 689 LLPD (close to 26 MT) was actually higher than the 406 LLPD of cooperatives for that year. The NDDB’s 2010-11 Annual Report had stated ‘the capacity created by them (private dairies) in the last 15 years equals that set up by cooperatives in over 30 years. It is estimated that the capacity created by private dairies in the last 20 years is more than the capacity set up by the cooperatives in over 30 years12. Private dairy processing units are functioning in all the states; the highest concentration is in Uttar Pradesh and Maharashtra, accounting for over half of the total plants in the country. In terms of total installed capacity, the four states of Maharashtra, Uttar Pradesh, Gujarat and Tamil Nadu account for more than half of the total. In the organised sector, private dairy companies are investing in developing an efficient milk procurement network as well as marketing of liquid milk and valued added products, in addition to focusing on bulk commodities like milk powder and ghee. Till the last decade, most of the private processors were operating on a small scale, focused on stabilising their operations. Over the years, some of them have expanded to establish a strong regional base with aspirations to have a national presence in the next few years. It is noteworthy that the percentage of milk being handled by the private sector has exceeded that of the cooperative sector. This ratio is expected to further increase in favour of the private sector in the coming years. However, the cooperative organisations are likely to remain the dominant players in the Indian dairy market. Some of the major organised private players include Tamil Nadu based Hatsun Agro Product Ltd which procures an average 26 lakh litres per day (LLPD) or around one million tonne (MT) annually. Besides, there are companies with an average milk procurement of 5-15 LLPD each. These include Parag Milk Foods, Schreiber Dynamix Dairies, Heritage Foods, Tirumala Milk Products, Sterling Agro Industries, VRS Foods, Nestle India, Prabhat Dairy, Indapur Dairy, Dodla Dairy, Creamline Dairy Products, SMC Foods, Milkfood, Gopaljee Dairy Foods and Anik Industries. The biggest component of India’s dairy market is liquid milk. According to Dairy India (2017), the liquid milk market’s share is estimated to be around 58% of the total value. After liquid milk, the biggest segment of the country’s dairy market is dairy products such as khoa, chhana and paneer used as base material for a variety of indigenous sweets and preparations, followed by ghee. Much of these products are produced by households or halwais (sweetmeat makers). Broadly the coverage of organised private sector in the country is 10.2%, while the organised cooperative sector accounts for 10.3 % of total milk production. ‘The rapid growth of private sector capacity in the last decade shows that the sector is prospering in dairy sector, and its imprint is more clear in value added products,

 

Broad Profile of Key Dairy Cooperatives & their Role in India’s Dairy Sector

Operation Flood focused on creating ‘Anand pattern’ across the country so that farmers could get remunerative price for milk which would in turn boost the country’s milk production. Anand pattern cooperative structure envisaged creation of a three-tier structure — village society, district union and state federation. The Anand pattern focused on providing collecting bargaining power to dairy farmers through creation of a three-tier structure.

Tier – I: Village Society: A village dairy cooperative society (DCS) is formed by milk producers or farmers with a commitment of selling milk only to the society after becoming a member. Each of the DCS acts as a milk collection center where members supply milk daily and payment is made on the basis of percentage of fat and solid not fat (SNF). Annually, a portion of the DCS profits is used to pay members a bonus based on the quantity of milk supplied.

Tier – II: District Union: A district milk producers union is owned by all the DCSs. The union procures all the milk procured by DCSs and then processes and markets liquid milk and valueadded products. District union also provides a range of services to farmers such as veterinary services and feed supplies and services like artificial insemination to sustain growth in milk production.

 Tier – III: State Federation: The cooperative milk producers’ union at a state level is responsible for marketing the liquid milk and products of member unions through a common brand name. Some federations also manufacture feed and support other union activities. More than two decades after implementation of the Anand model of dairy development through a three-phased Operation Flood, the spread of cooperatives across the country has been uneven. On one hand, state cooperatives in Gujarat (Amul), Karnataka (Nandini), Tamil Nadu (Aavin), Rajasthan (Saras), Punjab (Verka) and Bihar (Sudha) continue to witness growth and expansion in terms of milk procurement and marketing their respective brand names, while on the other, many states including Maharashtra, Uttar Pradesh and many eastern states could not implement the Anand model in letter and spirit.

 

Challenges in The Dairy Sector Business

India has a unique pattern of production, processing and marketing/consumption of milk, incomparable to any large milk producing country. India is the world’s largest milk producer and consumer of dairy products, consuming almost 100% of its own milk production. The Indian dairy sector is different from other dairy producing countries as emphasis is placed on both cattle and buffalo milk. In order to achieve greater profitability, quality standards need to be improved. Following are some of the practical dairy farming challenges in India.

Shortage of feed/fodder

There is an excessive number of unproductive animals which compete with productive dairy animals in the utilisation of available feeds and fodder.  The grazing area is being reduced markedly every year due to industrial development resulting in shortage of supply of feeds and fodder to the total requirement. Ever increasing gap between demand and supply in feeds and fodder limits performance of dairy animals. Moreover, provision of poor quality of forage to dairy cattle restricts animal production system. The low capability of purchasing feeds and fodder by the small and marginal farmers and agricultural labourers engaged in dairy development result in inadequate feeding. Non-supplementation of mineral mixture results in mineral deficiency diseases. High-cost Feeding reduces the profits of the dairy industry.

Breeding system

Late maturity, in most of the Indian cattle breeds, is a common problem. There is no effective detection of heat symptoms during oestrus cycle by the cattle owners. The calving interval is on the increase resulting in a reduction in efficiency of animal performance. Diseases causing abortion leads to economic loss to the industry. Mineral, hormone and vitamin deficiencies lead to fertility problems.

Education and Training

A vigorous education and training programmes on good dairy practices could result in the production of safe dairy products, but to succeed they have to be participative in nature. In this regard, education and training of all the employees is essential so that they understand what they are doing and develop a sense of ownership. However developing and implementing such programs in the dairy sector requires a strong commitment from the management, which at times, is a stumbling block.

Health

Veterinary health care centres are located in far off places. The ratio between cattle population and veterinary institution is wider, resulting in inadequate health services to animals. No regular and periodical vaccination schedule is followed, regular deworming programme is not done as per schedule, resulting in heavy mortality in calves, especially in buffalo. No adequate immunity is established against various cattle diseases.

Hygiene Conditions

Many cattle owners do not provide proper shelter to their cattles leaving them exposed to extreme climatic conditions. Unsanitary conditions of cattle shed and milking yards, leads to mastitis conditions. Unhygienic milk production leads to a reduction in storing quality and spoilage of milk and other products.

Marketing and Pricing

Dairy farmers are not getting remunerative price for milk supply. Due to the adoption of extensive crossbreeding programme with Holstein Friesian breed, the fat content of crossbreed cow’s milk is on the declining condition and low price is offered as the milk price is estimated on the basis of fat and solid nonfat milk content. There is also a poor perception of the farmers, due to lack of marketing facilities and extension services, towards commercial dairy enterprise as an alternative to other occupation.

During the pandemic, there has been a self-imposed ban on door-to-door sale of liquid milk by households both in urban and rural areas, forcing farmers to sell the entire produce to dairy cooperatives at a much lower price.

Further, the closure of shops had cut down the demand for milk and milk products while severe shortage of fodder and cattle feed has pushed up the input cost. Also, private veterinary services have almost stopped due to Covid-19, which has led to the death of milch animals.

Given the nature of production and sale of milk in India, milk producers are highly susceptible to even minor shocks as the demand for milk and milk products are sensitive to changes in the employment and income of consumers. Therefore, a lot needs to be done to save this critical sector of Indian economy.

Need to Protect Dairy Sector

• In the farm-dependent population comprising cultivators and agricultural labourers, those involved in dairying and livestock constitute 70 million.
  • Moreover, in the total workforce of 7.7 million engaged exclusively in raising cattle and buffalo, 69 per cent of them are female workers.
• In the Gross Value Added (GVA) from agriculture, the livestock sector contributed 28 per cent in 2019-20. A growth rate of 6 per cent per annum in milk production provides a great support to farmers, especially during drought and flood.
• Milk production rises during crop failures due to natural calamities because farmers bank more on animal husbandry then.

Associated Issues

• Invisible Labour:Farmers keep two 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 percent 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 percent of the milk bought by dairy cooperatives is at its lower price band.
• Half Hearted Government Efforts:In August 2020, the department reported a requirement of 2.02 lakh artificial insemination (AI) technicians in India whereas the availability is only 1.16 lakh.
  • Dairy farmers have been included in the Kisan Credit Card programme. Out of the total 1.5 crore farmers in 230 milk unions in India, not even one-fourth of the dairy farmers’ loan applications had been forwarded to banks as of October 2020.
  • Dairying was brought under MGNREGA to compensate farmers for the income loss due to Covid-19. However, the budgetary allocation for 2021-22 was curtailed by 34.5 percent.

 

Major challenges in promoting exports of dairy products from India

Despite phenomenal growth in milk production to become the largest milk producing country in the world, dairy exports from India face a number of challenges that may be summarised as follows:

*Despite being the largest milk producer in terms of absolute quantity, India’s average milk yield per cattle remains much lower compared to developed and even many other developing countries.

*The small size of milch-animal holdings in India makes it difficult to adopt mechanised system of milking, cooling and chilledstorage which hampers the efforts to improve quality at the farm production stage.

*India being a huge milk consumer owing not only to its large population size but also due to the largest vegetarian population in the world whose only source of animal based essential nutrient is milk, much low surplus is left for exports unlike other major dairy exporting countries.

*In many developed counties India faces a perception of being a country with common prevalence of foot and mouth disease (FMD) despite the sporadic incidences of the disease in some part of the country. India needs to make concerted efforts both to eradicate FMD and increase its perception to be free of any the disease in milch-animals.

*Cow milk is the only popular milk in most developed countries and buffalo milk is unheard of, whereas India produces substantiation quantity of buffalo milk. As foreign buyers are not always sure of suitability of buffalo milk for human consumption, they often insist upon dairy products manufactured from cow milk.

 

Emergence of new trade order and challenges to India’s dairy exports

Creating fairer markets in the agricultural sector including dairying has been the major contribution of the WTO. Although, the earlier rules of GATT did apply to agriculture trade but it contained several loopholes. Some developed countries protected their high-cost production of temperate zone agricultural products (e.g. dairy, meat, wheat products and other grains,) by imposing quantitative restrictions and variable levies on imports in addition to the high import tariffs. 7 This high level of protection often resulted in enhanced domestic production which because of high prices, could be disposed off in the international markets only under subsidy. Such subsidised sales depressed international market prices of such agro products including dairy products. It also resulted into taking away of legitimated market share of competitive producers such as India in the dairy and agro sector. As a result, the international trade in agriculture became highly “distorted” especially with the use of production and export subsidies which would not normally have been allowed for industrial products. Trade is termed as “distorted” if prices are higher or lower than normal, and if quantities produced, bought, and sold are also higher or lower than normal levels that usually exist in a competitive market. The opening up of economy under the WTO’s multilateral trade regime increasingly exposed the Indian dairy sector to the international markets, which in turn are distorted by domestic support, prohibitive tariffs and export subsides in developed countries and offers a number of challenges both in production and exports of dairy products from developing countries like India. Until 1991, the Indian dairy industry was highly regulated and protected through stringent licensing provisions and quantitative restrictions (QRs). India embarked upon liberal policy framework, which got reinforced, in 1994, with the signing of Uruguay Round Agreement on Agriculture (AoA).

 

 

Heavy domestic support: adds to the woes of developing countries’ dairy producers-

National policies that support domestic prices or subsidised production often encourage overproduction. This squeezes out imports or lead to export subsidies and dumping at much lower prices in international markets to dispose off the excess production. Under the agreement of agriculture (AoA), domestic policies that have a direct effect on production and trade were required to be cut back. The domestic support in the agriculture sector is categorised under Green, Amber and Blue boxes as discussed below.

Green Box

All subsidies that have little or at most minimal, trade distorting effects and do not have the “effect of providing price support to producers”, are exempt from reduction commitments. The subsidies under the Green Box include: • Government expenditure on agricultural research, pest control, inspection and grading of particular products, marketing and promotion services. • Financial participation by government in income insurance and income safety-net programmes. • Payments for natural disaster. • Structural adjustment assistance provided through: i. Producer retirement programmes designed to facilitate the retirement of persons engaged in marketable agricultural production. ii. Resource retirement programmes designed to remove land and other resources, including livestock, from agricultural production iii. Investment aids designed to assist the financial or physical restructuring of a producer’s operations. • Payments under environmental programmes. • Payments under regional assistance programmes

Amber Box

This category of domestic support refers to the Amber colour of traffic lights, which means “slows down”. The agreement establishes a ceiling on the total domestic support that government may provide to domestic producers.

Blue Box

Certain categories of direct payment to farmers are also permitted where farmers are required to limit production. This also includes government assistance programmes to encourage agricultural and rural development in developing countries, and other support on a small scale when compared with the total value of the product or products supported (5 percent or less in the case of developed countries and 10 percent or less for developing countries). The member countries quantified the support provided per year for agriculture sector, termed as “total aggregate measurement of support” (total AMS) in the base years of 1986-88. Developed countries agreed to reduce total AMS by 20 percent over six years starting in 1995 while the developing countries agreed to make 30 percent cut over ten years. Least developed countries were not required to make any cuts in AMS. The AMS is calculated on a product-by-product basis by using the difference between the average external reference price for a product and its applied administered price multiplied by the quantity of production. To arrive at AMS, non-product-specific domestic subsidies are added to the total subsidies calculated on a product-by-product basis. The level of domestic support continues to be very high in form of input subsidies such as feed-grains, irrigation, interest on loan and insurance. However, 89 percent of domestic support is concentrated in three regions/countries at EU (44%), USA (24%) and Japan (21%). At the best, policies in many developed countries have only been cosmetically altered by shifting the support from Amber to Green and Blue box measures. These heavy subsidies distort free market competition and make the prices of dairy products lower than the real cost. By putting the domestic support in green box category, developed countries are not providing level playing field for developing countries.

 

Market access: obstructing international dairy trade

Market access in developed countries is hampered by their maintaining high tariffs on products of interest to developing countries. In addition to elimination of all non-tariff measures by tariffication, all countries have bound all the tariffs applicable to agricultural products. In most cases, developing countries have given binding at rates that are higher than their current applied or reduced rates. There is a huge disparity in tariffs on dairy products in India and other developed countries. The tariffs on dairy products are almost three times higher in most developed countries than in India, Canada and Japan apply very high rate of tariffs at an average of 228.5 percent and 89.6 percent respectively. The average applied tariff in EU and US is 52.9 percent and 19.9 percent respectively. India’s applied tariff rate at 33.5 percent is much lower than its average bound tariff of 65 percent unlike most other developed countries. On one hand, this tariff peaks continue to block developing countries’ exports to developed world whereas on the other, due to reduction in tariffs by developing countries, the domestic markets would have been flooded with cheap & highly subsidized products, which would only lead to large scale resentment. SPS also continues to be a major barrier for developing countries in diversifying their exports in horticulture, meat and dairy products.

 

Export subsidies by developed countries distorting international dairy trade

 

The agreement on agriculture prohibits export subsidies on agricultural products unless the subsidies are specified in a member’s lists of commitments. Where they are listed, the agreement requires WTO members to cut both the amount of money they spend on export subsidies and the quantities of exports that receive subsidies. Taking averages for 1986-90 as the base level, developed countries agreed to cut the value of export subsidies by 36 percent over the six years starting in 1995 (24 percent over 10 years for developing countries). Developed countries also agreed to reduce the quantities of subsidised exports by 21 percent over the six years (14 percent over 10 years for developing countries). Least developed countries were not required to make any cuts. During the six year implementation period, developing countries were allowed under certain conditions to use subsidies to reduce the costs of exports marketing and transporting. The developed countries continue to provide high export subsidy to dispose off their large agricultural surplus in other countries of the world. EU gives subsidy of more than US$ 550 per tonne on SMP (Skimmed Milk Powder), US$ 850 per tonne on Full Cream Milk Powder and US$ 12, 00 per tonne on Butter and Butter Oil. While export subsidies on dairy products have been eliminated by the EU except small subsidies for storing butter under the Private Storage Aid (PSA) scheme, but that too is high.

 

Standards and safety measures

 

Under article 20 of the General Agreement on Tariffs and Trade (GATT) allows governments to act on trade in order to protect human, animal or plant life or health, provided no discrimination is made and it is not used as disguised protectionism. In addition there are two specific agreements dealing with food safety and animal and plant health and safely with product standards. The Agreement on Sanitary and Phytosanitary (SPS) Measures sets out the basic rules on food safety and plant health standards. This allows the countries to set their own standards which have to be based on the science and should be applied only to the extent necessary to protect human, animal or plant life or health. These regulations should not arbitrarily or unjustifiably discriminate between countries were identical or similar conditions prevail. Member countries are encouraged to use international standards such as FAO/WHO Codex Alimentarius Commission for food, International Animal Health Organisation for animal health etc. However, the agreement allows countries to set higher standards with consistency. The agreement includes provisions for control, inspection and approval procedures. The member governments must provide advance notice of new or changed sanitary and phytosanitary regulations and establish a national enquiry point to provide information. The Agreement on Technical Barriers to Trade (TBT) tries to ensure that regulations, standards, testing and certification procedures do no create unnecessary obstacles to trade. This agreement complements with Agreement on Sanitary and Phytosanitary (SPS) measures. All WTO member countries are required to national enquiry points to make this information available. In spite of above challenges, India can exploit better market opportunities for its dairy exports in near future while maintaining its commitment under WTO. • India can maintain its dairy tariff rates at WTO final bound levels, which is far higher than what actually India has been applying. • The export subsidies provision would not affect the Indian dairy because Indian dairy is out of this range. • India can also expand its domestic support to dairy under green and special & differential (S&D) treatment boxes of WTO since they are exempted from reduction commitments.

 

Strategy to Promote Dairy Exports from India

 

As physical infrastructure and logistics remains a key concern for exports of dairy products from India, an integrated approach for overall enhancement of export logistics in terms of creating cold chain facilities for transportation and storage needs to be adopted. Besides, India needs to focus upon exports of value added products with increased shelf-life and improved packaging to compete in international markets. Concerted efforts to market especially in building global brands and establishing international marketing channels are also called for. India needs to address effectively the emerging challenges under the new trade order affecting exports of dairy products. Moreover, as import tariffs have considerably declined and quota restrictions fast disappearing in international markets, there is a strong fear that high income countries are increasingly making use of quality standards as a formidable barrier to dairy exports from India and other developing countries. The research institutions and scientists in India need to keep a close vigil on such mandatory quality specifications in international markets so as to overcome the newly emerging international trade barriers.

 

Way Forward

The demand for milk and milk products in India is increasing very rapidly because of urbanisation, convenience demanded by consumers and shifting of consumers from loose to packaged dairy products. The dairy sector is currently growing at around 10-12% annually. Based on estimates of population growth and increase in urbanisation for the next four decades, it is anticipated that India needs around 600 million tonnes of milk per year to fulfill the demand for milk and milk products20. This means that India’s milk production needs to grow at around 3.2% CAGR for the next 40 years. According to NITI Aayog’s working paper on demand and supply projections towards 2033, the positive growth in bovine population has contributed towards the significant increase in milk production in the country. The livestock sector is exposed to a number of constraints. The pre-dominant are low productivity, chronic shortages of feed & fodder, large population of unproductive cattle, absence of effective extension system, low health care, immunization and hygienic programme, lack of cold chain logistics, unorganised marketing, etc21 . Another challenging area for dairy development has been that while availability of fodder (dry) and feed has increased significantly in recent years, the increase in green forages has been negligible. The deficit of dry fodder, concentrates and green fodder is estimated at 10%, 33% and 35%, respectively. This deficit is likely to widen to 11%, 35% and 45%, respectively by 2020- 21.

‘This is likely to happen in view of crop diversification from cereals to commercial crops affecting the availability of crop residues. The most critical issue is stagnation in the availability of green fodder. The reason for this is inadequate fodder seed production, market linkages, and very low seed replacement rate’.22 Another critical issue faced is lack of data on availability and production of various types of green fodder. Unlike food crops, the agriculture ministry does not collect data on fodder crops whose availability poses a serious challenge in increasing productivity. “There is no agency to provide precise data on fodder crop production, productivity, and adoption of improved varieties and technology for effective policy formulation and research planning,” according to the Indian Grassland and Fodder Research Institute (IGFRI) in its vision document – 2030 The Department of Animal Husbandry in an advisory23 issued to States had acknowledged that while the number of livestock is growing rapidly, grazing lands are gradually diminishing due to pressure on land for agricultural and non-agricultural uses. “Most of the grazing lands have either been degraded or encroached upon restricting their availability for grazing. The area under fodder cultivation is limited to about 4% of the cropping area, and it has remained static for the last four decades,” the advisory had stated. The key area of concern is the management of the major feeding sources for livestock. They include pasture lands, crop residues, edible weeds, grasses, cultivated fodder, tree leaves and agro-industrial by-products. Fodder crops are cultivated only on about 4.9% of the gross cropped area of the country and this area has been static for the last 25 years. Thus, the government has to formulate a contingency plan to boost fodder production so that the growth in the milk production is sustained in the next few decades as well. There have also been reports of shortage of concentrate. The feed industries generally use maize, soybean, wheat, rice bran, etc. Niti Aayog has recommended procurement of non-fair average quality food grains from those states where procurement infrastructure is weak. It was also recommended that “Price Deficiency Payment” to the farmers cultivating maize, soybean, etc. may be taken up so as to increase availability of raw material to feed industries. This can enable them to meet the requirement of concentrate for bovine, poultry, pigs and inland fisheries. This can also attract feed manufacturing units in areas where procurement has traditionally been week.

Crises also present opportunities for reform. The Centre has, through a series of initiatives, ushered in reforms in various sectors, including agriculture. The backdrop of Covid-19 has provided stakeholders an opportunity to reorient the thinking on dairy. For this to happen, there will be changes required, definitive action, and a different growth trajectory for the industry, notwithstanding the fact that, today, India is the largest milk producer in the world.

The livestock sector—within it, dairy—needs to play a larger role in the prime minister’s goal to double farmer’s income by FY23. Further, promoting dairy will also lead to a more equitable income, and this aspect needs to be appreciated. Milch animal holding is far more equitable than land holding. About 85% of the total farmers are small and marginal. While they together own about 47% of farmland, they own about 75% of milch animals. The productivity of milch animals in India is around one-eighth of the global average. Land prices in India are very high, which makes running large dairy farms unviable. So, dairy farming in India will continue to be dominated by small and marginal farmers.

Estimates suggest that 48% of the milk produced is consumed by dairy farmers themselves, and 52% is marketable. A study undertaken by a private agency has estimated that of the total surplus, 20% is processed in the cooperative sector, 30% by branded private dairy companies, and the rest by the unorganised sector (milk for sweet shops, loose milk, etc). Uttar Pradesh, Andhra Pradesh, Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Haryana, and Punjab together account for 65% of the country’s milk production. The processing capacity, measured in terms of milk chilling infrastructure (cooperatives), is highly skewed, with Gujarat alone accounting for 46% of this. Future growth of dairy must come from newer areas, and with modernised technology suited for small dairy farmers.

At present, most of the milk processing plants with cooperatives are old and need to be expanded or modernised. The technology in these plants may not be energy efficient compared to available modern technologies. It is estimated that additional capacity of 75 lakh litres per day, modernising capacity of 75 lakh litres, and milk processing capacity of 12.5 crore tonnes per day can be augmented with an investment of Rs 5,000 crore. The transparent payment system and modernisation of procurement process are key drivers for organised milk marketing infrastructure, and can be achieved by installing Automatic Milk Collection Stations and Bulk Milk Cooling Units, respectively. Modern procurement process also aids hygienic milk production, boosting state efforts to promote export-oriented dairy industry.

The recently announced Animal Husbandry Infrastructure Development Fund of Rs 15,000 crore can address the infrastructure requirements of the sector.

On the production and productivity end, gaps in artificial insemination (AI) and breeding services have to be overcome—for covering at least 60% of the breedable population, the requirement is 200 mn doses of AI, against which only 115 mn doses are being produced. With land increasingly being put to non-agricultural uses, the supply constraint regarding feed and fodder resources is real! It is estimated that percentage of gap to demand in case of concentrates, dry fodder, and green fodder is 39%, 36%, and 57%, respectively. Propagating the smallholder dairy model compounds the problem. With respect to credit, there are two challenges: flow of credit vis-a-vis the potential; and mismatch between regional flow of credit to the AH sector and livestock resources.

Technological developments have opened up various possibilities for the dairy sector that need to be mainstreamed and leveraged to enhance productivity. IoT and data analytics has to be harnessed for digitising milk production, procurement, processing, and marketing. Such digitisation may focus on solutions for herd management, smart milk procurement, cold chain management, livestock insurance, fintech for dairy farmers for seamless transactions, etc.

While these are not firm, some estimates suggest refrigeration penetration in India is not more than 10-20% at the household and retail level—lower, in rural India (1-2%). Refrigeration is critical in tropical countries when it comes to growth of normal dairy products as opposed to ultra-high temperature products.
There will be two major drivers of demand for dairy products—increase in income levels, and urbanisation—spurring household demand for packaged dairy products like ghee, curd, butter, etc. The demand for value-added products (VAPs) like paneer and cheese is expected to grow more in the HoReCa (hotel, restaurant, and café) segment. By 2020, the share of VAPs in the organised milk market is likely to increase to 30% from the current 23%. VAPs bring in higher profits for dairy companies than liquid milk, which provides a window-passing higher profitability to farmers in the form of milk procurement price. Dairy cooperatives have largely catered basic milk, butter, processed cheese slice, and ice cream for many decades. Thus, though a large portion of milk would be sold as processed packed liquid milk, focus would be on enhancing the share of dairy cooperatives in the VAP segment.

The future of dairy in India hinges on supporting smallholder dairy farmers, promoting the sector in newer areas, creating (and modernising) dairy infrastructure, bridging the gaps in fodder requirements, and giving a technological face-lift to the sector. Dr Verghese Kurien, the doyen of Indian dairy industry, lived by the values of integrity, dedication, and commitment, and always espoused the cause of the smallholder dairy farmer. Time is ripe to take the take the dairy cart forward on a fast lane!

 

• Increasing Productivity:There is a need to increase the productivity of animals, 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:If India has to emerge as a dairy exporting country, it is imperative to develop proper production, processing and marketing infrastructure, which is capable of meeting international quality requirements.
  • Thus, there is a need for a comprehensive strategy for producing quality and safe dairy products that should be formulated with suitable legal backup.
  • 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.

Strategy for Boosting India’s Dairy Exports & Key Challenges for Exporters

 

Dairy sector provides livelihood opportunities for large section of population both in urban as well as rural areas. The key factor determining the sustainability of the dairy sector is to ensure that farmers continue to get remunerative prices for the milk sold to processor in private sector as well as cooperatives. The government need provide appropriate policy support to domestic dairy industry for boosting its export potentials.

 

• Support for Export of Skimmed Milk Powder (SMP) Due to lockdown to curb the spread of COVID19, the demand of milk and milk products especially from the Hotel, Restaurants & Catering sector has adversely impacted, thus resulting in sharp fall in sales of these commodities. While majority of the co-operative dairies have continued to collect milk from dairy farmers to ensure best possible financial support in spite of lower sales, this has resulted in surplus stock of SMP and butter. Till July, 2020 India has more than 1.5 Lakh metric tonne of SMP out of which about 50,000 metric tonne of SMP can be exported through support provided by the government by competing in the global trade of SMP.

Removal of Tariff and Non-Tariff barrier by different nations Majority of the large dairy importing nations across the world are not permitting import of dairy from India by applying various tariff and non-tariff measures to protect imports.

 

A broad list of measures imposed by various countries on dairy imports is as below:

Name of Country    Challenges Faced by Indian Dairy Exporters due to Restrictions

China -The world’s largest importer of dairy products does not permit import from India due to reciprocal ban.

Russia -Requires their own veterinary control team to approve India’s plants. Since last 4 years no approval to Indian dairy industry

European Union -Not approved any Indian dairy plant (for exports) under pretext of veterinary control, Antibiotic and Pesticide residue etc

Canada -Canadian Food Inspection Agency does not permit import of dairy products from India. Impose Import duty of around 250%.

Indonesia– Requires MUI (Halal) as well as Agricultural department approval. MUI team visits for plant inspection.

Malaysia –Requires JAKIM (Halal) approval. Visits for plant inspection once in 2-3 years and inspects very limited plants.

USA -Import duty of 40 to 60% on dairy products

South Africa, Mexico, Venezuela –Do not allow import of dairy products from India.

Australia –Do not permit import of dairy products from India due to Foot and Mouth Disease (FMD). Only retorted products are permitted

Egypt / Saudi Arabia –Follows EU standard for Aflatoxin and stopped Indian milk powder.

Pakistan– 45 % import duty on SMP and does not permit import of other dairy products

Sri Lanka and Bangladesh –30% import duty on dairy products

Thailand– More than 40% import duty

Myanmar and Philippines– Long registration process for dairy imports

Afghanistan– Though large importer, the goods have to be routed via Karachi (because banks not permitting Iran route)

 

Non-Level Playing Field in Global Dairy Trade due to subsidy by the developed countries:

 

Developed nations like EU and USA have been giving huge subsidy support to their dairy farmers for exports. As per the latest, estimates USA provides subsidy of over USD 12 billion and Europe gives support of about USD 15 billion to their dairy farmers under Export Subsidies and Assistance programmes from time to time. Besides, developing countries provide other supports by providing buffer stocking storage support, or additional market. In India, there is no such support provided to dairy farmers thus making them uncompetitive in global trade.

• Potential for specialized dairy product exports from India: As per the USDA estimates, out of India’s total production of 190 MMT, nearly 55% milk (105 MMT) originates from buffalos which have an average milk yield of 6.2 Kg per day ( as per latest DAHD’s report). The milk from the water buffaloes holds higher fat content, which fetches higher prices at market since the milk prices are determined by volume, fat, and solids-not-fat (SNF) content. Certain products like Buffalo Mozzarella Cheese, Buffalo Ghee etc. can command huge premium in markets like United States and Europe and are also preferred by Dairy farmers due to high returns. India should explore possibility of indigenous Indian dairy based sweets like Gulabjamun, Rosgulla, Penda etc. The Government could support exports by providing technological and financial supports for production of such products as mostly these products are handmade. Government can allocate separate funds for dedicated marketing of value added, Geographical Indication Registered, Region specific produce. Both digital and traditional media platforms can be utilised for sustained communication campaign.

 

• Merchandise Export Incentive Scheme (MEIS) / Rebate of State and Central Taxes and Levies (RoSCTL) scheme:

MEIS support is currently provided at 3 % to Ice-cream and dairy based ethnic sweet (Gulab jamun, Rasmalai, Rasgulla, Milk cake, etc.) and 5% to products like Ghee, Butter, Cheese. MEIS support of 20% on all dairy products including Milk powder, Tetra Pak milk, Fermented Milk and milk fat was given for limited period from July 2018 to Jan 2019. Subsequently, India witnessed substantial increase in export of dairy products from the country and become competitive in international market with this support. In order to boost the exports of dairy products, the Government should provide support in form of either MEIS or RoSCTL to all dairy products.

 

Inclusion of Dairy Products under New Freight Support Scheme.

 

As a part of implementation action plan of Agriculture Export Policy, 2018, the Government had announced the scheme for providing Financial Assistance for Transport and Marketing of Agriculture Products to boost exports of such commodities to certain countries in Europe and North America. The current policy for providing Transport and Marketing Assistance Scheme (TMA) as per Public Notice No 82/2015.2020 dated 29/03/2019 provides boost for export of specified agricultural products with dairy sector being excluded. Because of the huge potential of dairy business in terms of increasing India’s export basket, Government may look forward to extend this scheme to the Dairy Products as well.

• Export Promotion Capital Goods (EPCG) Scheme

Ø Vide Para 5.13 (a) of EPCG scheme, some of the exporters (which includes Animal Husbandry products) are not required to maintain export obligation. Ø DGFT does not treat dairy products as eligible under the criteria, even though dairy products are derived purely from milk which is a product of animal husbandry sector. Ø DGFT must allow dairy product exporter from maintaining average export obligation.

 

• Grey exports without Export Inspection Council approval

 

Ø Export of Dairy products is monitored by Export Inspection Council since 2000. However many merchant exporters are procuring dairy products from domestic market which is labelled as per FSSAI regulations and are exporting the same which results into illegal exports and at times faces rejection in foreign market due to wrong packaging declaration. At times, merchant exporters are applying wrong declarations on the product for instance Ghee is called as Vegetable oil so as to save import duty on dairy products in that country like USA. At times, illegal exporters declare the dairy export consignments material for rituals in the country like European Union which does not permit import of Indian dairy products. Incidences like these adversely impacts potential Indian dairy exporters at large. Ø Many times such illegal stock is withheld by the foreign country’s authorities which tarnishes the brand image of manufacturers (like Amul) as exporter and importer will simply start business in another name. This also creates bad image for the country. Ø Essentially, Indian customs should not have permitted export of such products but the port authority is not able to verify all exports and hence such products get exported. Ø The EXIM policy should take care of such items where export of the products are required to obtain specific approval by putting a check in the Custom’s EDI system itself which will permit export of the product only after completing legal requirements.

• Issues in custom clearance due to examination of Self-sealed container:

Govt of India has initiated very nice step of E-Sealing of container by which exporters are not required to call GST (Erstwhile excise) inspector for sealing of the container and now with E-Sealing the procedure has become very convenient and easy for all exporters. However, at port at the time of custom clearance more than 10% of the exports are getting “examination orders” under which containers are required to be opened at the port and custom officials are examining the goods. Now in case of temperature controlled cargo, this examination is becoming very difficult since there are no facility to off load temperature controlled cargo in the port. It results into delay as container has to go back to warehouse and as a result the vessel is also missed which results into detention charges till the next vessel and ultimately huge cost on exporters. Customs has come out with a circular to go back to original procedure of factory stuffing under GST official supervision. It is essential that Custom must exempt at least “Status Holder” exporters from this kind of examination report and system should also reduce number of examination to less than 1% instead of current limit.

 

• Focus on Animal Health Issues:

The key challenge in the export of dairy products (and meat industry) is mainly due to noncompliant veterinary practices as per the developed countries’ standards. The Government needs to allocate higher funds and take measure to control FMD and other diseases which will help both domestic industry as well as exports.

• Strengthening local milk production by protecting farmers against cheap dairy product imports:

As India had taken firm stand in RCEP considering impact on dairy farmers due to fear of import of dairy products from Australia and New Zealand, the government must continue the same policy. In the forthcoming FTA or CEPA with countries like EU & USA etc. the government must ensure that none of them are given any access as it will have very bad impact on livelihood of millions of dairy farmers and India’s status of ‘Atamnirbhar Bharat’ for milk products. There is a huge potential for increasing Dairy Exports from India which can be explored by providing proper financial incentives, lower cost of doing business and market support to boost exports. Further, Stable policy framework from the Government with due impetus on Dairy Sector will allow all stakeholders to build business models with medium- to long-term plans, creating a strong USP for an Indian dairy export product.

The government could consider several measures in supporting private dairy players: · Soft loans, moderate interest rate on CAPEX and working capital support · Subsidies, incentive and other financial support at par with cooperatives · NDDB’s operations should not be restricted to private sector alone. It should work for the development of entire dairy sector, rather than only the cooperative sector. · National Cooperative Dairy Federation of India (NCDFI) manages e-marketing portal (www.ncdfiemarket.com) and allows private dairies to buy milk and products but prohibits them from selling their dairy produce on their electronic platform · Setting up an Institutional structure and corpus fund to purchase milk powders (SMP) and butter when excesses are stocked · Incentivise exports – International prices of dairy commodities are often lower than the production cost in India. With the series of measures being taken by the government as well as growing role of private sector in dairy development, India is expected to sustain its growth in milk production and milk processing in the coming decades. However, the critical issue facing the dairy sector is how to bring down cost of milk production through investment so as to boost productivity and also explore possibilities of increasing dairy products exports. The Indian dairy industry’s future not only lies in increasing processing capacities, but also in making its raw material supplier, the farmer, a cost-efficient and globally competitive producer. The role of private sector in developing an efficient dairy value would be critical, as India aims at doubling farmers’ income in the next few years.

OPPORTUNITIES –

The above challenges are certainly hampering the growth of the Indian dairy industry, but let’s take a look at the positive side. All these challenges actually translate into opportunities because the future of this industry is quite bright if we look at the numbers:

• The market size of the Indian dairy industry stood at Rs. 9,168 billionin 2018.
• In the same year, India also became the leading milk producing country in the world, accounting for 19 percentof the global market share.
• It is estimated that the dairy industry will grow at 14.8 percent CAGR to attain Rs. 2,458.7 billionvalue and become the largest dairy producer in the world by 2023.
• The dairy industry is also set to witness Rs. 130-140 billionsof investment in the next two years.
• The dairy sector is expected to generate 1.2 crorenew jobs in a few years.
• The size of organized dairy market is Rs. 1 lakh croreand growing at 10%.
• India’s cold chain market is expected to reach Rs. 470 billionby 2022.

These numbers clearly indicate that the dairy industry can flourish by leaps and bounds by leveraging on the following opportunities:

Catering to Demand and Consumption

India is the largest milk-consuming country in the world. Currently, the per capita milk availability is 370 gram per person which surpasses world per capita milk availability of 260 gram per person. The demand for milk and related products is expected to rise driven by increasing population, higher income leading to more spending power, heightened interest to experiment with new foods and increasing health consciousness. The share of milk and milk products in the monthly per capita food expenditure of Indian customers is rising steadily. The rise in the demand for milk spells good times for the dairy industry ahead.

Entrepreneurship

An increasing number of startups have emerged in the Indian dairy industry paving the way for organized supply chain management, higher product quality, product diversification, food safety, innovative livestock breeding and maintenance practices, nutritious fodder for livestock, dairy technology and professional marketing. Dairy entrepreneurship is still in the nascent stage, but it has tremendous potential to take the dairy industry to new heights.

Technology Innovations

Many private companies, co-operatives and startups are relying on new-age technologies such as artificial intelligence, advanced analytics and Internet of Things to improve milk production, find anomalies in milk production, reduce milk wastage, monitor health of livestock, predict weather conditions, develop last mile logistics infrastructure and digitize the operations. While these technologies are still not accessible and affordable for milk producers and vendors in rural areas, it is only a matter of time that they embrace these with industry and government support.

Product Diversification

An increasing number of Indians are now demanding Value-Added Dairy Products (VAP) such as UHT/flavoured milk, cheese, flavoured/frozen yoghurt, ice-creams, butter, buttermilk, milk shakes and baby foods for their deliciousness, superlative edge to balanced nutrition, power of real ingredients and larger shelf life than raw milk. There is also a huge demand for these products in retail food chains, fast food outlet and coffee shops.

These products have higher margins and offer around 20% higher revenues as compared to regular dairy products such as liquid milk, ghee, paneer, etc. VAP market currently account for 8-10% share of the unorganized dairy sector but it is estimated that it will witness 6-8% YOY growth and capture 20% of the market share by 2021. It is also expected that VAP market will grow 50% faster than the entire dairy sector fuelled by factors such as rapid urbanization and increase in number of women in the workforce due to which they wouldn’t have much time to make curd, butter, etc. from milk at home. There is also the fact that certain dairy beverages are more affordable and healthier than carbonated drinks and packaged fruit juices.

In the coming years, the dairy industry will capitalize on product diversification for growth.

Government Initiatives

The Indian government has been making fruitful efforts to uplift the dairy industry through schemes such as the National Dairy Plan (Phase 1), National Programme for Bovine Breeding and Dairy Development and Dairy Entrepreneurship Development Scheme. It has also provided income tax deductions related to cold chain facilities.

There is no doubt that the Indian dairy industry is poised to tap its full potential. In the coming years, it will create level-playing fields for all industry players and benefit customers in terms of quality and prices, eventually creating a win-win situation for all stakeholders.

 

Conclusion

Over the past few decades, the Dairy sector has emerged as a lifeline of the rural economy in India. However, given the high price elasticity of milk and milk products, the dairy sector has become one of the most vulnerable sectors of the rural economy.

Therefore, given the importance of dairy sectors, for both farmers and consumers, there is a need for governments at various levels to address this crisis and establish a holistic framework for the overall growth of the sector.

https://www.pashudhanpraharee.com/challenges-and-oppertunites-of-dairy-sector-of-india/

https://www.entrepreneur.com/article/326317

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