The Hindu Business Line : Dairy dilemma

The year 2007 is a landmark year for milk production in the country, which reached a new high. At over 100 million tonnes, milk output has breached the magical three-digit level, making India the world’s second largest producer, after the European Union (154 million tonnes) and accounting for nearly 15 per cent of the world production of 675 million tonnes. The US, which used to be the largest producer until the mid-1990s, is today a far third, with 84 million tonnes . Without doubt, milk is the country’s success story, with sustained annual average growth of close to 3.5 per cent — a study in contrast with the moribund agricultural sector that witnesses wide year-on-year fluctuations and has registered an annual average growth of a paltry 2.3 per cent last 10 years. Despite commendable production performance, however, one cannot say ‘all’s well’ with the country’s dairy sector. Many challenges besiege it, not the least of which is the rather low per capita availability of liquid milk (230 grams per person per day). And its bacterial quality is suspect due to unhygienic production, handling and distribution. Coupled with low milk yield by milch-cattle, the fragmented nature of dairy farms defeats scale economies. This makes the primary producers vulnerable to domestic market forces.

International prices of dairy products have skyrocketed since the beginning of the year, with the price of milk powders (skimmed and whole) soaring, while cheese and butter prices have risen less sharply. Record prices are attributable to both short-term and underlying structural causes, including exhaustion of public stocks in the EU. Across the world, dairy markets are complicated by substantial domestic and trade policies that completely insulate them from international price volatility. Huge subsidies (estimated at $40 billion) flow to the dairy sector. India is unaffected by the recent international developments, primarily because of its large, informal market that is fragmented and unorganised and prevents transmission of international price signals.

Unrelated to global price development, milk prices in India have been rising primarily because economic growth and demographic pressure have pushed demand higher. Prices also edged up because of the country’s entry into the international market for skimmed milk powder. High milk powder prices led the government early this year to place an embargo on its t export. The decision has turned rather contentious. Should the country meet domestic demand or take advantage of rising export prices? A simple answer in consonance with free-market policy would be: Export by all means, if there is assurance that a considerable part of the benefit of high global prices would flow back to primary producers.

Related Stories:
Liquid milk helps in dairy industry growth

More Stories on : Editorial | Dairy & Dairy Products

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Dairy dilemma

Does corporate social responsibility need incentives?

Lone gainer?

US: Wall Street-Main Street disconnect

Construction will continue to contribute bulk of revenues

Avoid being swept along by market manias

Rice export

Retail gains