Dairy Scenario-Constraints and prospects

Dairy Scenario-Constraints and prospects
Dr.T.P.Sethumadhavan
Serious discussions are taking place around the world in the wake of WTO ministerial meet, which will be held at Hong Kong during December2005. So it is appropriate to analyse the possibilities and constraints for export of milk and milk products from India. Even though India has emerged as the largest producer of milk in the World with a production level of about 88 million tones in 2003-04 accounting for about 13 per cent of total world milk production. But the country has very little experience in the international trade of dairy products. The global dairy market has been changing dramatically in the last few years as international restrictions on trade in dairy products are easing and protection for domestic dairy industries is declining in the wake of WTO negotiations. This opens the door for potentially dramatic changes in trade patterns as industries around the world adjust to the new competitive environment. The import and export of dairy products, which was restricted through quantitative measures (canalization, licensing, quotas, etc.) and other non-tariff barriers, was brought under the Open General License and import tariffs for most dairy products were significantly reduced. This exposes the Indian dairy sector to an open economy.
As far as Kerala is concerned total value of output from livestock are 56115.67 million Rupees as against 139186.26 million Rupees from Agriculture. Commodity share is 3.83 percent in livestock sector whereas in Agriculture it is around 3.5 percent. Livestock sector is growing at the rate of 3.8 percent per Annum as against 0.9 percent in Agriculture.

Disciplining export subsidies, which are used by many countries to bridge the gap between high domestic prices and lower world market prices, was one of the most significant accomplishments of the new trade regime. Export subsidies allow countries to export goods in the world market at prices lower than those in their domestic markets do. Looking at individual import markets and products within the dairy sector, it appears that in the developed countries, the bound tariffs are normally over 100 per cent and as high as 370 per cent for yogurt in Japan and 300 per cent for butter in Canada. In contrast, the tariffs are as low as zero and do not exceed 65 per cent in developing countries. Recently United States pushed for forward movement in the WTO negotiations but was silent on the issue of extending further concessions on agriculture owing to the domestic farm lobby. Farm tariffs are the major issues in the WTO negotiations.

The dairy industry in European Union, United States and many other developed countries have historically been insulated from volatility in the world dairy market through use of various import restrictions. An increase in domestic price reduces the competitiveness of dairy industry while fall in domestic price increases its competitiveness. Since the international prices of dairy products and exchange rate are highly volatile and are outside the direct influence of government and the Indian dairy industry, the only way to increase the competitiveness of Indian dairy sector is through reducing the domestic market prices of raw milk by raising the milk yield or reducing the cost of milk production. Since, reduction in cost is not possible, the option available to reduce cost of milk production through raising the yield level of dairy animals. The average milk yield per animal in India is one of the lowest in the world. Therefore, in order to remain competitive in the international market, there is need to enhance productivity of milch animals, promote value addition of milk and milk products and introduce measures to improve sanitary standards with legal back-up in the milk production and processing sectors in the global free trade regime.
Thus Indian dairy industry is highly competitive, if all government export subsidies given by the developed countries in general and the European Union and United States in particular, are eliminated in line with the current WTO rules for industrial products. The experience of the first five years of implementation of the WTO Agreement on Agriculture suggests a mixed picture, both in terms of implementation of its various provisions and its impacts. Many distortions in agricultural markets still remain and not all the expected benefits have materialized.

The main reasons for the high level of protection to major dairy products in India were: (i) the international prices for most dairy products declined significantly in the post-WTO period, and (ii) export subsidies on these products (mainly by the European Union and United States) increased substantially. International price of dairy products and exchange rate are the two important international level parameters, which have a major influence on the competitiveness of this industry, but the industry and even the country have no control over these parameters.
Moreover, the world dairy prices are highly distorted with heavy export subsidies and domestic support, which depress the domestic prices and create unhealthy and unfair competition for domestic industry. Therefore, some protection should be provided to our domestic industry in order to safeguard the interests of milk producers and processors.
Though India has become the largest milk producing country in the world per capita availability of milk is one of the lowest. In 2003-04 it is about 232 gms per day as against world average of 285gms. In India rapid increases in household income, with urbanization and changing life style have combined to shift consumption towards non-traditional cereals and value added products including livestock products. As a consequence milk consumption in India has increased more than 20 percent whereas rice consumption reduced marginally. With regard to consumption pattern of dairy products over time NSSO surveys revealed that expenditure on livestock products leads the food expenditure with a share of around 24.5 percent. Within livestock products, milk and milk products is the major category with about 70 percent share. This shows importance of dairy products in food expenditure and consumer expenditure as income level rises.
Global opportunity for Indian dairy industry will not only in the conventional areas like milk powder, butter, condensed milk etc. but in Cheese, chilled deserts, cream, yoghurt, fats and spreads as well. Area for growth in dairy sector will depend upon the ability of this sector to serve the market as per the need of the consumers. Growth strategy in dairy must focus three trends driving the market. Viz, Health and nutrition needs, pleasure and fun desire, product presentation and packaging factors. The high import tariffs, large export subsidies and domestic supports are still part of dairy policy around the world. Indian dairy sector is competitive only if the export subsidies on dairy products by developed countries are abolished. Even if tariff barriers, domestic support and export subsidies are abolished in the developed world the real challenge for Indian dairy sector would be from SPS and TBT related issues. In order to meet these requirements both domestically and globally, modernization of whole supply chain starting from producer to end consumer is required.
Due to SPS norms, high transportation cost and low per capita consumption export potential for fluid milk is comparatively less in India.
Some of the domestic support measures needed are-potential to convert latent potential in to demand. Concentrate more on quality- improved production methods, good manufacturing and retail practices including preservation techniques with adoption of HACCP measures.

India being the second largest producer of food in the world, the country fares poorly in terms of value addition to its raw produce in the food processing industry. Countries such as Philippines and China, not to speak of those in Europe and North America have managed to add considerably more value to their farm products than India. The food safety and standards bill 2005, now before a parliamentary standing committee, is the latest in a series of recent initiatives that seeks to diversify agriculture and encourage the vital food processing industry. The proposed legislation will update all existing laws on the subject and usher in food management and safety standards.

Measures needed to exploit the international market in the dairy sector are import tariff for dairy products should be increased. Dairy products include Butter, Ghee, Yoghurt, Cheese, Cheese spreads, milk powder, fats and spreads, milk chocolates, waifers, etc. 30-40 percent export subsidy should be given to butter, milk powder, ghee, cheese, and milk chocolates exports. Existing import tariff for very few livestock products range from 0-65 percent. Export subsidy remains zero.