US-India Trade Deal: Threat to Dairy Sector

Economy & International Affairs

Topic: General Studies 2,3:

• Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests
• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

US-India Trade Deal: Threat to Dairy Sector

Context

During Trumps’s visit to India, these are prospects of Indo-US deal being finalised in specific sectors including dairy sector (with potential of $100 million). 

Market access for US dairy products in India may have adverse impact on domestic dairy sector.

Significance of the dairy sector in India’s overall economic scheme

• Rural Livelihoods: 80 million rural households are dependent on Dairy sector for their livelihood
• Largest agricultural commodity- Milk and milk products output is 20.6 per cent of the combined output of paddy, wheat and pulses
• Provides alternative employment: crop production generates employment for the rural workforce for an average of 90-120 days in a year, while dairy sector can provide employment during the remaining period.

• Contribution to National Economy:

• • While the share of agriculture and allied (A&A) sector in the gross value added (GVA) has consistently declined from 18.2% in 2014 to 17.2% in 2017, the share of livestock to GVA has increased from 4.4 % to 4.9 % during the same period
  • Within the A&A sector, among the key livestock products, milk and milk products have the highest share, at around 67.2 per cent in 2017.

Dairy Trade: India and USA

• US is a net exporter in dairy trading, with its share in global exports standing at 4.9 per cent as opposed to an import share of around 2.8 per cent in 2018
• Share of India is minuscule at 0.3 per cent and 0.06 per cent in global dairy exports and imports, respectively, in 2018.
• India’s dairy exports to US have increased by almost seven times from $2.1 million in 2015-16 to $14.9 million in 2018-19. However, India’s imports from US has seen moderate increase from $0.07 million in 2015-16 to $0.22 million in 2018-19
• Thus, India has a trade surplus vis-à-vis USA in dairy sector of nearly $14.41 million in 2018-19

Reasons behind India’s trade surplus with the US in dairy

• India has a comparative advantage in the export of ‘melted butter’ and ‘processed cheese’ to the US because the cost of production of both these products is cheaper in India

• Melted butter’ (ghee) has the largest share in exports to the US at 56%, followed by ‘processed cheese’ (21%), butter (10%), ‘other cheese’ (3.9%), and ‘other fats’ and ‘oils derived from milk’ (3.5%) in 2018-19.
• Lower duties on dairy products in the US help provide a boost to diary exports from India. An average final bound duty on dairy products in the US is around 19 per cent, as against close to 64 per cent in India.
• Cultural and religious sentiments: Indian authorities’ mandatory certification (non-negotiable considering religious sentiments) from the concerned US agency states that “the source animal should not have been fed animal-derived blood meal”. This weeds out significant imports from the US

Daily Current Affairs IAS | UPSC Prelims and Mains Exam – 21st February 2020

Comparison of Indian dairy farmer vs US dairy farmer 

• In 2017, India contributed 21% of the world’s milk production, thus making it the largest milk producer in the world. 
• This has been made possible by the almost 73 million marginal and landless farmers who directly work in the dairy sector and hold, on average, two milch animals per farmer.
• Indian farmers enjoy favourable terms of trade in the dairy arena, with their share in the consumer price standing at around 60 per cent (highest in the world)
• However, in the US, there are around 0.04 million dairy farmers holding an average of 241 milch animals per farmer. These big farmers only get around 43 per cent of what the consumer pays.
• According to The World Dairy Situation,2019 report, milk yield per cow in the US is the highest in the world, standing at 10,500 kg per cow as against 1,715 kg per cow in India
• Importantly, a dairy farmer in the US is able to sell milk at a price 16.6 per cent above the average world market price, as compared with the similar number standing at 15.6 per cent in India

Implications on India due to Trade deal in dairy sector

• It is evident from the numbers that despite lower milk yield and dominance of small and marginal farmers in dairy activity, India is comfortably placed to produce milk at a cheaper rate
• Thus, opening market access for the sector is likely to place these dairy farmers (largely small & marginal) in a disadvantaged position in relation to the large-scale dairy farmers in US.
• For the Indian dairy industry, the trade deal will not only adversely affect the industry as a whole but also the socio-economic conditions of millions of small, landless and marginal farmers — especially women, who are active in this industry. 
• It is likely to temper the sentiments in the rural economy, which is already dealing with a gamut of problems at present

• The deal could play spoil sport in fulfilling the goal of doubling farmers income by 2022

Conclusion

Thus, it will be prudent on the part of Indian authorities to take adequate precautionary measures in proceeding ahead with the trade pact with the US on dairy products

Connecting the dots!

• RCEP and India – Dairy Sector (New Zealand)
• Trade deal in other sectors like manufacturing, financial services etc – implication on India’s domestic economy