Dairy Industry & FTA

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TOPIC: General Studies 2:

• Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests 

In News: A few days ago India decided against joining the Regional Comprehensive Economic Partnership – RCEP which is a free trade agreement between more than dozen counties. In the run up to the RCEP meet, the domestic Dairy Industry has been vocal about its apprehensions regarding this FTA. 

Why is the Industry apprehensive?

India has been the leading producer and consumer of dairy products with a sustained growth over the years. Estimated production of milk in 2018-19 was 187 million tonnes. Milk is equally important to both farmers and consumers. 

Cheaper dairy products from New Zealand would 

• Worsen the trade deficit
• Dent the domestic industry – If India signs the RCEP, without exemptions for dairy and its products, it would allow the dairy industry of Australia and New Zealand to unfairly target its huge market.
• Indian products would start facing stiff competition from Australian and New Zealand products 
  • Will lead to unemployment and worse living conditions – There are 70 million households dependent on dairy in India, the corresponding number is just 10,000 in New Zealand and 6,300 in Australia.
  • The unit cost of milk production is relatively low in countries like New Zealand because of extensive grazing lands (which reduce feed costs), mechanised operations and the advantages of economies of large-scale production, and the high productivity of milch animals
  • According to estimations made by Amul, if free imports of skimmed milk powder from New Zealand are permitted, the average price for milk received by an Indian dairy farmer would fall to ₹19/l (presently it is ₹30/l).
• In turn, that will lead to decline in the cattle rearing and proper care for them which will lead in the decline of population. India will cease to become self-sufficient –
  • India’s dairy sector provides livelihood to about 70 million households. A key feature of India’s dairy sector is the predominance of small producers.
  • In 2017, if the average herd size in a dairy farm was 191 in the U.S., 355 in Oceania, 148 in the U.K. and 160 in Denmark, it was just 2 in India
  • Yet, due to Operation Flood after the 1960s, India’s contribution to world milk production rose from 5% in 1970 to 20% in 2018.
  • As a result, India does not import or export milk in any significant quantity.
  • In 2033, India’s milk production would rise to 330 MMT while its milk demand would be 292 MMT. Thus, India is likely to be a milk-surplus country by 2033

India’s average bound tariff for dairy products is about 63.8% while its average applied tariff is 34.8%. Joining RCEP would have bound India to reduce that level to zero within the next 15 years. 

RCEP could perhaps end up doing to dairy what the free trade agreement with the Association of Southeast Asian Nations (ASEAN) did in palm oil, fear many in the industry in India.

Way forward:

• India needs to reduce the unit cost of milk production improved feeds, mechanised operations and increasing the productivity of milch animals.
• India should ensure that its concerns are addressed if it wants to join RCEP in future, by providing adequate room for India government to protect Indian farmers.

Note: 

Regional Comprehensive Economic Partnership (RCEP):

• The Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and its six FTA partners (China, Japan, India, South Korea, Australia and New Zealand).
• RCEP member states accounted for a population of 3.5 billion people with a total (GDP) of $49.5 trillion, approximately 39 percent of the world’s GDP

Milk in India:

• Milk is the India’s largest “crop”. 
• In 2018-19, the estimated production of milk, at 187.75 million tonnes (mt).
• The value of milk output (Rs 5,63,250 crore at an average farm-gate rate of Rs 30/kg) 
• Milk is a source of liquidity for farmers, as it is sold daily and generates cash to take care of routine household expenses, unlike other crops that are marketed only once or twice a year.
• Milk matters equally to consumers in India, because it meets the animal protein/fat requirements of a significant portion of the population that is vegetarian.

Connecting the dots:

1. Joining RCEP would have had high socio-economic costs on Indian dairy farmers. Elaborate.
2. Milk and dairy industries are highly developed in the USA, Europe and New Zealand? Why? Also, explain their distribution in these locations.