However, the future of the Indian dairy sector lies first and foremost in the domestic market. Indian people, being dairy-minded, will buy dairy products as soon as they can afford it. For the majority of people only a small amount of money is available to spend on dairy products, but the affluent middle class is growing considerably. This will be the target group for most of the dairy products and especially for higher added-value added products.

Currently, India is a non-entity in the international dairy marketplace. Only small quantities of dairy products are exported to Bangladesh, Sri Lanka, Nigeria, the Middle East and veryrecently to the USA. The WTO provisions provide India with the opportunity to sell their products in other parts of the world, especially to the 150 million non-resident Indians all over the world. An ample export potential exists for unique traditional milk products such as ethnic sweets and foods like shrikhand, rossogolla and paneer. India's largest dairy company, the Gujarat Cooperative Milk Marketing Federation (GCMMF) recently started exporting ghee, butter and shrikhand under the Amul brand to the USA. These products will soon be available in Canada also. The Indian dairy sector's challenges include the need for improvements in animal feeding, vet services, milk production, collection and transport as well as the need for advances in corporate technology and marketing.

Further liberalisation seems to be necessary to make private and foreign investments in the dairy sector more attractive. The Indian dairy industry will need these additional investments to keep pace with the fast increasing demand fordairy products. Export opportunities are certainly positive, but every litre of milk exported will create a need for further expansion in the dairy industry unless imports grow considerably. On the other hand, during the coming WTO-round more pressure will be put on the Indian government to improve the market access for dairy products. The tension between domestic consumption, exports and imports is not only there in terms of milk volumes, but also in terms of the value added products. Despite attempts of the Indian dairy companies to develop their product range, it could well be that in the future more value-added products will be imported and lower value products will be exported.

Policy

Despite the fact that India is among the few countries in the world which do not support the price of milk or the income of dairy farmers, the Indian government plays an important role in the dairy sector. Indian dairying has come a long way from dependence to self reliance; the total amount of milk produced morethan tripled from 23 million tonnes back in 1973 to 71 million tonnes 25 years later in 1997. This tremendous rise in milk production is primarily the fallout of the dairy farming policy reflected in "Operation Flood".

Import restrictions and WTO implications for the Indian dairy sectorIn 1991, India began liberalising its strict import regime. Before 1991 the Indian market for agricultural products had virtually been closed for imports. The high tariffs have been reduced in recent years but this is not the case for non-tariff barriers. As a developing country under WTO rules, India was exempt from providing additional market access. In addition, India had not been required to reduce its tariffs because of adverse Balance of Payments conditions during the base period. However, as pointed out by the USA, Japan, Australia and countries of the European Union, India no longer suffers from an adverse BOP and as such its quantitative restrictions should be converted into tariffs and bound. Meanwhile, Canada, theEU, Australia, Switzerland and Japan have each reached a bilateral agreement with India on the phase-out of its quantitative restrictions.

Excerpted from Rabobank International's `Food and Agribusiness in India' 1999 Update