Dairy Sector: Need to explore the hidden potentialities

Dr B K Mukhopadhyay

S o far as India’s dairy sector is concerned strong growth both in demand and prices is expected. The current fiscal is all set to exhibit a rising trend, according to India Ratings and Research. India’s dairy market in FY16 is expected to rise by 15.6 percent. In FY 2016 around 4.6 percent milk output rise is expected to be there.

Let us have a quick look at the recent statistics. Indian dairy sector’s value in FY 2013 was at Rs.3, 59,256 cr. India’s milk output in FY14 was placed at 138 mt. Expected milk output in FY 2016 has been assessed at 151 mt. Expected value of Indian dairy sector in FY 2016 would be around Rs.5,54,690 crore.

According to the ‘India ratings and Research Report’ rising dairy product prices are not to affect demand for milk and milk-based items [cheese, butters], keeping in view changing dietary habits as well as rising disposable income of the Indian population.

As the things stand now. India has vast resource of livestock and poultry, which play a vital role in improving the socio-economic conditions of rural masses. India ranks first in respect of buffalo, 2nd in cattle and goats, 3rd in sheep, 4th in ducks, 5th in chickens and 6th in camel population in the world. India has around 57 per cent of the world’s buffalo population. The Livestock Sector not only provides essential proteins and nutritious human diet through milk, eggs, meat, etc., but also plays an important role in utilization of non-edible agricultural by-products.

Dairy products, which include milk, butter, cheese and eggs, make up 0.8 per cent of world trade. As with many trade maps; Europe is large and Africa is very small on this map. In terms of US dollars worth of dairy products exported (net), New Zealand has the highest per person earnings at US$ 641 a year. Dairy produce from New Zealand is exported to 140 different territories and 3.5 million dairy cows live there. Overall, less than a quarter of the world territories have no dairy exports.

If the current trends are of any indication: commodity wise and country wise picture reflects not a very rosy picture indeed. Skimmed milk powder exports are now expected to rise, particularly due to increased exports from the United States in the recent past. Exports from New Zealand, Australia and the European Union were anticipated to rise margilly. Imports to both African and Asian countries were expected to increase, stimulated by comparatively lower prices. Imports by Mexico were expected to continue at previous levels, given the importance of and support for its social feeding programmes.

Global exports of whole milk powder are expected to rise, as global milk supplies expand. Whole milk powder remains the key milk product exported by surplus milk producing regions to growing developing country markets. New Zealand, the largest whole milk powder exporter, is set to increase sales. But the largest increases are expected to be there from the European Union, as its milk production increases. Deliveries by Australia and Argenti are expected to be better. Algeria and Venezuela are the two largest importers of whole milk powder, and while imports in the former have declined considerably, those of the latter have remained firm, despite high prices. Milk production in these two countries has been increasing, under efforts to replace imports.

Then what is written on the wall?

While intertiol cheese trade continues to grow and is by far the highest value market for milk products, exports are expected to go up steadily. Exports from the European Union are expected to fall. The United States increased its exports of cheese and reduced its imports during the recent price spike and it is uncertain whether this situation will be sustaible as its dairy sector slows under falling domestic prices and high feed costs. On the import side, most of the growth in trade occurred within the Russian Federation and the growth of this market will depend on how the country fares in the current economic conditions.

It is also becoming clearer that regiol trade shares are changing, and this may mark the new emerging structure of the world dairy market. Europe’s role as a major source of supplies for trade has diminished significantly, as has that of Oceania, while those of the America’s and Asia have grown. The United States may export, increasing its trade share to around 12 per cent. Conversely, the trade share of the European Union is set to fall.

Milk production is now expected to rise by only margilly in Asia. This reduced rate of growth is largely caused by a sharp slowdown in Chi, now the world’s fourth largest dairy producer. The reduced speed reflects increasing production limits, related to water and feed supplies, as well as the fact that the size of the production base has increased substantially. The reduction of production growth in Chi may be critical in the longer term for world dairy markets. If domestic demand would continue its pace, imports could grow significantly.

However, the discovery in mid 2008 that melamine had been blended into a significant portion of the Chinese milk supply to enhance the protein content of watered down milk not only cast severe doubts over Chi’s dairy sector, including its growing product export potential, but also suppressed consumer confidence worldwide, especially in developing countries.

Side by side: South America is all set to be the fastest growing milk production region. Argenti’s milk production growth has been limited by lower returns due to large export taxes on milk products, whereby taxes are adjusted to maintain lower domestic prices. This policy induced some milk producers to participate in tiol strikes and blockades in early 2008. Brazil may soon be the second largest exporter in the region or even the largest if current trends continue over the next several years. Other parts of Latin America and the Caribbean, Mexico, some of the world’s largest importers of milk powders, will post limited milk production gains given high feed costs and a shortage of domestic available feed.

As a whole milk production in Africa is anticipated to be consistently below world average growth, showing weaker supply response to the price spike. But the United States’ dairy sector responded significantly to attractive interl and exterl prices in the last couple of years. However, this growth is lower than expected, due to the downturn in profitability experienced so far this year, as indicated by the milk to feed price ratio. This has limited milk yield growth and has induced higher culling of cows. In addition, the recent appreciation of the United States dollar lowered the competitiveness of the United States’ industry on intertiol markets compared with the situation of even a couple of years back. In Cada, higher feed costs have induced yet higher target prices, and this has limited domestic market growth but production is expected to remain stable.

By now it is a well known fact that in India today the animal husbandry and dairy sector has occupied a very significant position. Besides providing cheap nutritiol food to millions of people, it is helpful in generating gainful employment in the rural sector, particularly among the landless labourers, small and margil farmers and women by supplementing their family incomes. Livestock continues to be the best insurance against the vagaries of ture like drought, famine and other tural calamities. Though undoubtedly, the situation has changed mainly due to the operation flood programme, yet the overall picture cannot give rise to any sort of complacency.

The question that turally comes up is: why has not India’s per capita milk production been able to present a very satisfying picture? The Indian dairy industry was still suffering under colonial cooperative laws that do not ensure a level playing field for the cooperatives making them globally incompatible, according to father of India’s White Revolution- Late Verghese Kurien. Very practically he opined that while dairying in Europe, Australia, New Zealand and North America is domited by cooperatives, enjoying the same legal and regulatory environment as any other enterprise, sadly, India continues to suffer under a colonial cooperative law that ensures anything but a level playing field!

The valued comments must be taken in the right spirit indeed!

(The Writer, a noted Magement Economist and an Intertiol Commentator on contemporary business and economic affairs, attached to The West Bengal State University, can be reached at m.bibhas@gmail.com)