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Free trade pact will grossly impact Indian dairy sector: Dairy players

India is the largest dairy producer in the world. (Photo courtesy of ILRI/Flickr)

Food and Beverage News | Tuesday, August 09, 2011

Free trade pact will grossly impact Indian dairy sector: Dairy players

Nandita Vijay, Bangalore

The Indian dairy sector will be grossly impacted by the Union government’s effort to include milk products within the domain of the proposed Free Trade Agreement (FTA) between India and New Zealand, feels a section of the Indian dairy industry.

New Zealand, known as a dairy country, accounts for 95 per cent of milk exports and has a 35 per cent global market share in the space. The country’s dominant dairy player Fonterra has been part of the FTA discussions with the Indian government and is now looking to offload much of its milk products to the country. It is against this background that the dairy industry is expressing concern over the government move.

In 2010, the Government of India permitted import of milk powder to the extent of 45,000 tonnes. According to a public notice issued by the Directorate General of Foreign Trade dated August 4, 2011, quantity permitted for import of skimmed and whole milk powder is increased from 30,000 tonnes to 50,000 tonnes, with immediate effect. The government also banned export of milk powder and casein estimated to be another 75,000 tonnes.

The stoppage of exports and encouraging imports has itself created milk surplus in the country. At this juncture, proposal to import another 20,000 tonnes will lead to a dumping situation which is totally avoidable, according to industry sources.

According to Kuldeep Saluja, managing director, Sterling Agro Industries Ltd, New Delhi, the FTA move is alarming and it will affect scores of poor dairy farmers in the country. The inclusion of Chapter 4 dealing with customs tariff of dairy products was not taken into account in the earlier FTAs, which India had inked with countries including Netherlands, Singapore, Mauritius and Dubai. "Now if Chapter 4 was excluded in the case of Netherlands which was also dairy-rich country, there was no reason for India to include it with New Zealand and in doing so, the Union government would now finish the Indian dairy sector," he added.

Saluja further stated, "New Zealand will now export its sprayed dried full cream milk of 26 per cent fat content into India, which is detrimental to the health of the people in the country. Instead of being concerned, the Government of India appears confused."

"The move by the Union government has caused jitters to the dairy industry which will now face the wrath of unnecessary competition when there is milk supply is in excess today," stated sources from dairy industry in Karnataka.

Presently, India holds the leadership status as the highest milk producer in the world with the production pegged at 112.540 million tonnes per annum in 2009-10 as against 94.5 MT per annum in 2004-05 registering a compounded annual growth rate of approximately 3.5% p.a.

The import decision is fraught with deficiencies which will make Indian dairy farmers poorer, they pointed out, adding that with the affordability, disposable incomes and growing awareness consumption of milk has gone up over the years. But the irony is that when the country is recognised as the highest milk producer globally, the move to import milk is unwarranted and uncalled for.

The government has no comprehension of the situation of milk production and it needed to reconsider its move, pointed out a section of Karnataka small-medium-sized dairy- owners.

"The problem lies in organised milk collection. Take for instance, UP, which is the largest milk producer and accounts for 18% country’s share. In UP, the milk cooperatives have shown miserable performance as their collection has significantly gone down to 5.18 lakh litres per day in 2009-10 from 9.58 lakh litres per day in 2004-05. In fact, UP alone produces half of the milk produced in North India. The production reached 5.4 crore litre per day in 2009-10 as against 4.24 crore litre per day in 2004-05. Effectively, UP produces milk 1.25 times of milk produced by New Zealand," stated the sources.

The situation only goes to show that the National Dairy Development Board (NDDB) aided sponsored cooperatives are inefficient and do not take active steps for augmentation of milk collection. Rather, the government, at the behest of NDDB, is engaged in shortcut methods to tackle the so called milk shortage by resorting to import of milk powder.

Providing solutions to tackle the situation, the industry sources said that efforts to step milk collection by the cooperatives in north India needed to be looked into immediately. In Gujarat, the cooperatives account for 38.5% of the milk production in the state and Karnataka Milk Federation accounted for 28% of the state’s milk output as compared to just 1% in UP. This is despite the fact that milk production in UP touched 5.4 crore litre per day in 2009-2010. The milk collection by cooperatives was 2% of the milk production in 2004-05 which fell to 1 per cent despite increase in milk production.

The government could have avoided import of milk powder for 45,000 tonnes last year only if NDDB made efforts to source it from UP as Delhi. Instead, NDDB worked as New Zealand Dairy Development Board instead of NDDB. This is a mystery as to why NDDB has not taken any steps for the same.

The government is citing 6% growth in demand as against 4% in supply in milk for the last five years. The data is unreliable because there is a shortage of 2% and government measures are in tune with the reality. Assuming that the shortage was 2% of domestic milk production, the government should have imported little more than 2 million tonnes whereas the government imported 45,000 tonnes only. Instead of importing this, NDDB could have bought milk from UP in no time as 45,000 tonnes translated into just 9 lakh litre per day which was again just 1.5 per cent of UP’s daily milk production. The claim that the country has been facing 2% shortage over five years is not plausible as there should have been a milk crisis in the country. Therefore, the NDDB claim is a mere exaggeration only. There is a management crisis instead of milk crisis.

The government is killing a goose that lays down golden eggs by allowing the export of oil cakes for the cattle feed and the irony is that domestic milk producers who have to pay higher feed prices due to the exports. To aggravate the problems, the government is allowing export of beef encouraging reckless slaughtering of animals thus reducing the availability of milch animals.

"Instead of addressing problems in the dairy industry, the government is taking ad hoc policy decisions which help overseas milk producers and reduce the 150 million domestic milk farmers into misery," averred the industry sources.

 source: Food and Beverage News