Amidst rising competition and falling prices Indian dairy market needs to introspect
US president Donald Trump’s visit has reinvigorated the focus on a bilateral trade deal. The US is keen get better market access into India for its agricultural products, including dairy which is a very sensitive issue with far reaching socio-economic and political repercussions in India.
Corporates and governments alike are using a host of tactics, at corporate and government level both, to get access to the Indian dairy market, which is the world’s largest. Despite much lower per capita income, India’s demand of 48.8 million metric tonnes (MMT) of fresh milk products during 2008-17 dwarfs the demand in other parts of the world—China (1.99 MMT), sub-Saharan Africa (2.67 MMT), and OECD (0.57 MMT). Interestingly, during 2018-27, OECD estimates, India’s milk consumption will increase at much higher pace than any other country in the world, to 63.37 MMT, compared to merely 7.69 MMT in China, 5.83 in sub-Saharan Africa, and 1.38 MMT in OECD.
India’s ingenious strategy to organise and institutionalise milk production has become a matter of envy for the traditionally well-established dairy producing countries. India has a come a long way from being a net importer of dairy products a few decades ago to become the world’s largest milk producing country, producing over 186 MMT of milk. India’s milk production grew at a CAGR of 4.5%, compared to 1.8% for the USA, and 1.3% in EU and Australia, over the last 60 years. Moreover, India has made strides in development of technology to suit its own requirements in dairy processing, and product innovation and scientific research.
Today, the traditionally robust milk producers are not fearful of the US, Europe or Oceania, but of the challenge emanating from the Indian dairy industry. Milk surplus regions, especially New Zealand, Australia, the European Union, and the US, unable to find a domestic market, are compelled to find international markets. In recent times, use of pressure tactics has grown considerably in bilateral and multilateral negotiation to gain market access to dairy products. Major milk producing countries are laying special emphasis on inventing innovative tools to gain market access or duty concessions.
India has been evading economic liberalisation in dairy trade, but this strategy is not sustainable in the long-run. It is time the Indian dairy industry, both cooperatives and the private sector, introspected on the issues hampering India’s international competitiveness. A serious cause of concern contributing to high cost of production is the miserably low milk yield—1.33 tonne per head in 2018—compared to much higher yields in major milk producing countries; for instance, 10.47 tonnes per head in USA, and 7.06 tonnes per head in the EU. The enormous gap in milk yields, and reliance on other animals, such as sheep, goats, and camels, which inherently have lower milk yields compared to milch is responsible, to a large extent, for the huge disparity between the share of milk production and inventories between developed and developing countries, especially India.
Worldwide, there is a lot of propaganda against milk on the grounds of health or the vegan movement, and several plant-based recently introduced milk substitutes are posing a new challenge and competition to existing dairy products. Contrary to the frequent fluctuations in the dairy prices in the last decade, the international market prices are expected to remain relatively flat in the coming years. The SMP prices (in real terms) in international market deteriorated to $1,090 per MT, whereas the WMP prices plunged to $2,525 in the 2016. Moreover, it is estimated that milk powder prices may also remain relatively flat at $2,165.2 per MT for SMP, and $2,910.3 for WMP until 2028. International butter prices are far above their lowermost price of $3,352 per MT in 2015, reaching $4,898 per MT in 2018. They are projected to decline, and later remain flat, to $3,824 per MT by 2028. The international cheese prices in real terms slumped to $3,652 per MT in 2018 after reaching their peak of $5,479 per MT in 2008, and are expected to decline only marginally to settle at $3,309 per MT in 2028. On the other hand, the cost of dairy inputs in India is rising, leading to increased cost of dairy production constraining margins.
In view of the stagnation in world dairy prices, the entire emphasis of Indian dairy industry must be on achieving greater cost efficiencies, with substantial quality improvements to make it internationally competitive, and reduced reliance on government subsidies. Under the WTO framework, governments, central as well states, are required to reduce and revamp the structure and mechanism of subsidies, and the assistance provided, which is not very palatable to beneficiaries (farmer organisations, cooperatives, and industry).
Besides, ever rising input costs is a matter of concern that can be offset only by improving efficiency of the dairy industry across the supply chain—from milk production, milk handling, and storage, to transportation, processing, and marketing. India also needs to address challenges related to dairy productivity, process innovation and improvement, promotion and marketing, and of generic promotion of ‘Made in India’ dairy products, especially the value-added indigenous products in international markets.
The writer is Professor and chairperson (Research), IIFT, Delhi