How Indian Dairy Sector can leverage opportunities in RCEP

Updated: August 6, 2019 9:55:58 PM

According to the National Action Plan for Dairy Development- Vision 2022, GOI, India would be producing 300 million metric tonnes of milk in 2023-24.

Indian Dairy Sector, RCEP, milk productivity, NITI Aayog, india milk production, Adulteration of Milk, Indian Dairy IndustryIn 2018-19, India exported USD 345.02 million and imported USD 28.47 million worth of dairy products. India has a trade surplus in dairy products with the world and as well as with the RCEP countries.

By Sanya Sharma and Ram Upendra Das

India is the world’s largest milk producer, producing 20% of the total milk produced by the world. According to the National Action Plan for Dairy Development- Vision 2022, GOI, India would be producing 300 million metric tonnes of milk in 2023-24. However, the increase in production is hugely constrained by factors like low milk productivity, shortage of land, fodder, and water.

Factors Limiting Production to Meet Domestic Demand

India’s milk productivity remains the lowest due to poor genetic make-up, low capacity to take entrepreneurial risks, shortage of land, water, feed and fodder, and poor animal health and veterinary services. The report “Demand and Supply Projections Towards 2033” by NITI Aayog, highlights the shortage of 117 million tonnes of dry fodder, 400 million tonnes of green fodder and 40 million tonnes of concentrate by 2025. Also, milk production is a water-intensive activity involving consumption of freshwater in different stages of milk production either in direct form or indirect form.

Domestic Consumption-Production Gap

Existing reports like Vision 2030 by NDRI and National Action Plan for Dairy Development-Vision 2022 highlight the possibility of the demand-supply gap in the coming years. Further, India will face a supply shortage of 102.52 million tonnes by 2034 (using consumption projections by National Action Plan for Dairy Development-Vision 2022 and production projected linearly).

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Contamination of Milk and Milk Products

According to the National Survey on Adulteration of Milk by Food Safety and Standards Authority of India (FASSAI), 68.7% of milk and milk products sold in India are not as per the standards led by it and are adulterated with water (most common adulterant), detergents, caustic soda, glucose, white paint, and refined oil. There are various recent cases of milk adulteration in the states like Madhya Pradesh, Uttar Pradesh, and Mumbai highlighted by the Indian media.

India’s Trade in Dairy Products

In 2018-19, India exported USD 345.02 million and imported USD 28.47 million worth of dairy products. India has a trade surplus in dairy products with the world and as well as with the RCEP countries. Regional Comprehensive Economic Partnership (RCEP) is a proposed Free Trade Agreement between ten ASEAN countries and its six FTA partners (India, China, Japan, South Korea, Australia, and New Zealand). India’s milk production is greater than the total milk produced by all RCEP countries. Moreover, India is experiencing an increasing trade surplus with Australia in dairy products and with New Zealand India’s trade deficit is decreasing, considering that Australia and New Zealand are the two major producers and exporters of dairy products amongst the RCEP members.

Dairy Exports of Australia and New Zealand

As per estimates, milk production of Australia and New Zealand put together was only 20% of India’s milk production in recent years. Australia is experiencing a decline in milk production and exports, whereas New Zealand’s dairy exports to India at present account for only 0.66% of its total dairy exports and its main exporting destination is China. Considering that New Zealand is a bigger dairy producer than Australia, it is imperative to analyze total exports volume of New Zealand with respect to India’s production. The quantum of New Zealand’s dairy exports to the world in 2018 stood at approximately 3 million MT whereas India’s production was around 180 million MT, whereby the former is merely 1.6 percent of the latter. Fear of New Zealand Dairy for the Indian market is minuscule both in terms of quantity and proportion.

Using the production, consumption, export and import data an attempt has been made to capture the residual left with Australia and New Zealand that could be directed towards India, calculated as a difference between exportable surplus and actual exports of these countries to the world. With respect to cheese and whey-based products, Indian consumption is very low. In the case of butter, residual which could be directed to India by both Australia and New Zealand combined accounts for only 3.11% of India’s butter production. There exists no major fear in case of liquid milk since the shelf life is extremely small and in the case of SMP, any residual which can be exported by Australia is 3.5 % and from New Zealand, it is 19% with respect to India’s production. Thus, the only area of major concern emerging is the Milk Powder segment within the Indian Dairy Industry.

Product Differentiation

There is a difference in types of dairy products produced by India and countries like New Zealand and Australia. Indian consumption of dairy is mainly for Ghee and liquid milk. Whereas, in other countries like New Zealand, Australia and other developed nations, processed dairy products like cheese, yoghurt, etc. dominate their dairy consumption. Also, people in India prefer making various dairy products at home.

Augmenting supply is a must for nutritional purpose, maintaining quality and for stability of prices which can be achieved by improving domestic production through FDI and joint ventures, leading to employment generation. Given the domestic constraints, it is difficult for India to expand production beyond a point. International collaborations will help to create a new market for value-added products which will help Indian farmers to earn higher profits because of limited margins involved in liquid milk production. It is our duty to facilitate regional trade and economic cooperation in the interest of farmers, producers, and consumers, of India so that their children and families consume dairy products that are un-adulterated and disease-free, especially when domestic shortages are projected due to several reasons!

(The authors are Research Fellow and Head, Centre for Regional Trade (CRT), New Delhi, respectively. Views expressed are personal).

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