Editorial. India’s dairy sector needs a structural shift

India is faced with a milk shortage. The Centre has reportedly been considering import of butter and ghee. The Union Animal Husbandry Secretary Rajesh Kumar Singh recently said that cooperatives reported a milk production increase of 1-2 per cent in 2022-23, while the data from other players in the organised and unorganised sector point to stagnant output. At least three factors have played a role in the drying up of milk output vis-a-vis the annual growth trend of 5-6 per cent.

First, demand destruction during Covid led to a crash in prices and with it the inability of dairy farmers to invest in the upkeep of their cattle. Second, lumpy skin disease has, by all accounts, wreaked havoc. The official death count of 1.9 lakh cattle could be an underestimate. Although the Centre claims that at least a third of the livestock has been vaccinated since last August and that the worst is over, the effects of the disease will perhaps linger for a while as dairy farmers need to recoup income and capital losses. Third, fodder inflation at 30 per cent has been a critical factor. According to ICAR scientists, fodder and feed account for 70 per cent of the cost of milk. The first two factors could be transient. Income and capital depletion can eventually be overcome with milk prices ruling high. But fodder inflation is an endemic issue, as supply has not kept pace with the demand. It has for decades been grown on just 4 per cent of farmland.

Fodder development does not find much of a place in animal husbandry budgets. For a sector that supports more than 80 million farmers, and one that can provide a livelihood to many more small and marginal farmers (120 million of them, with plots too small for viable farming), it is worth investing in policies to address embedded supply constraints. Dairy products demand is growing rapidly with rising population, incomes, urbanisation and changing diets.

As the 2022-23 Annual Report of the Ministry of Animal Husbandry and Dairying has pointed out, the private dairy sector has responded, having “surpassed the combined capacity of the dairy cooperatives and government dairies in the past 20 years”. Notably, 228 dairy cooperatives reach out to 17 million farmers, many of whom are likely to be assured of their milk being procured at the right time and at a fair price. This time, private players have wrested some market share from cooperatives by offering higher prices in a buoyant market. But for sustainable dairy development, it is important that producers, most of whom are poor, are spared price volatility — they deserve price assurance of some sort. Private players should be nudged to invest in supply chains in this capital intensive business. Cooperatives revolutionised dairying, but due to a variety of factors their success has not gone beyond Gujarat and Karnataka. Today, there is room for all players to grow, given the demand scenario.

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