Modi’s decision to opt out of RCEP reflects India’s prudence on dairy trade

Published: November 7, 2019 1:17:52 AM

Acting before the milk spills

RCEP, FTA, dairy producing countries, narendra modi, industry stakeholders, dairy farmers, milk production, domestic market, NITI Aayog Working GroupContrary to earlier sentiments of the country’s intelligentsia and bureaucracy, PM Modi took a conscious decision to opt out of RCEP. (AP photo)

By Rakesh Mohan Joshi

Realising the concerns of farmers and industry, at large, India pulled out of the Regional Comprehensive Economic Partnership (RCEP) FTA. Contrary to earlier sentiments of the country’s intelligentsia and bureaucracy, PM Modi took a conscious decision to opt out of RCEP. This will make millions of small farmers and industry stakeholders, especially the dairy farmers and their co-operatives alike happy.

India’s ingenious strategy to organise and institutionalise milk production has become a matter of envy for the traditionally well-established dairy producing countries. Today, the traditionally robust milk producers are not fearful of the US, Europe or Oceania, but are afraid of the emanating challenge from the Indian dairy industry.
India is one of the largest milk producing nations with over 186 million metric tons of milk production a year. The country was a net importer of dairy products a few decades ago. Contrary to apprehensions of western dairy experts and erudite economists, both in India and abroad, over the last 60 years, India’s milk production has grown at a CAGR of 4.5% compared to 1.8% in the US and 1.3% in EU and Australia.

India is credited to provide up to 70-80 % of the consumer price to dairy farmers compared to merely 25% in Australia, 33% in New Zealand and around 30-40% in most parts of Europe. Interestingly, 77% of milk production comes from small, marginal and landless farmers. Milk is the key source of liquidity and supplementary income for over 100 million farmers.

Today, India has reached self-sufficiency in milk production whereas the EU, the US, Australia and New Zealand are largely milk surplus nations. Due to limited domestic market, countries like New Zealand and Australia are compelled to pro-actively explore markets for 93% and 25% of their milk production, respectively.

India has about 100 million farmers dependent on dairy compared to merely 10,000 in New Zealand and 6,300 in Australia. Thus, the socio-economic impact of dairy sector is much more pronounced in India compared to any other major milk exporting country.

As per the NITI Aayog Working Group, India is estimated to produce 330 mmt milk by 2033, against an estimated domestic demand of 292 mmt. India’s situation is likely to strengthen and the country is likely to have surplus. Therefore, the enviable balance of demand and supply in India’s domestic market does not call for import of basic dairy commodities such as milk powder and milk fat.

Despite curb in production and export subsidies, major milk trading nations are actively using a variety of regulatory and non-tariff measures, complex enough for hard-core theorists and pseudo-intellectuals to understand and internalise into their assessment of world dairy order. Quantitative restrictions on milk-production and relative incentives used in a complex manner, coupled with a range of subsidies to depress milk prices, are the order of the day. A range of sanitary and phytosanitary barriers and issues related to quality assurance and cumbersome and exorbitantly expensive processes of certifications pose formidable hindrance for Indian dairy products to enter international markets, and it is unlikely that the scenario is going to change in near future.

In countries like New Zealand and Australia, pastures for cattle grazing, are available to farmers with little cost. Rearing of cattle and keeping dairy farming remunerative enough in time to come is the only challenge India needs to address. Ever rising cost of inputs in India need introspection.

India certainly needs technology, trade and investment in dairy sector. But the country under no circumstance can blindly follow the model for dairying or borrow the institutional mechanism that may be detrimental to the interests of domestic dairy industry and farmers in particular. Interestingly, the retail prices of milk and milk products in India is among the lowest in the world. Any imports on concessional tariff should be limited to production of exports. India needs to apply its own prudence while liberalising dairy trade.

The author is Professor and chairperson (Research) IIFT, New Delhi. Views are personal

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