Evolution of Dairy Sector
Evolution of Dairy Sector
Over the span of three decades, India has transformed from a country of acute milk shortage to the world’s leading milk producer, with production exceeding 100 million tonnes in 2006. This phenomenal success is attributed to a Government initiative known as Operation Flood (1970–1996) and its intense focus on dairy development activities. In that initiative, rural milk shed areas were linked to urban markets through the development of a network of village cooperatives for procuring and marketing milk. And milk production and productivity were enhanced by ensuring the availability of veterinary services, artificial insemination (AI), feed and farmer education. The investment paid off, promoting production gains of 4–5 percent per annum.
However, that growth has slumped to less than 3 percent in recent years, raising cause for concern. The slowdown is attributed to the decline in investment in the dairy sector since the end of the Operation Flood initiative. Central and state government allocation for dairy development has diminished in the past two five-year plans.
Dairy is currently the top-ranking commodity in India, with the value of output in 2004 at 1.179 billion rupees (US$39 million), which is almost equal to the combined output value of rice and wheat. Despite the importance of the dairy sector in overall GDP, it receives less government budgeting than the agriculture sector. Further, there has been no concentrated investment in the development of value-added or innovative products, nor any serious effort to support and modernize the informal sector.
In light of the increasing demand driven by the growing population, higher incomes and more health consciousness, the slowdown in dairy industry growth is severely worrisome. Based on estimates by the National Dairy Development Board (NDDB), the demand for milk is likely to reach 180 million tonnes by 2022. To supply the market, an average incremental increase of 5 million tonnes per annum over the next 15 years is required – a doubling of the average incremental rate achieved over the past 15 years. In the absence of sufficient increased production, India will need to rely on the world market for imports. And because of the huge volume required, it will affect global milk prices. Thus, focusing on areas for local dairy development is critical.
Traditionally, the policy environment has favoured the expansion of cooperatives, which ultimately crowded out the private sector. However, liberalization of the sector in recent years has encouraged private investment in dairying. In 2002, the Milk and Milk Products Order (MMPO) ushered in major policy changes friendly to the private sector and a momentum of activity that is likely to increase dramatically in the coming years. Large Indian and multinational corporations, such as Reliance, Pepsi and Coca-Cola, are planning significant investments.
Nowadays, both the private sector and the cooperatives drive the value chains. Because of the many unsuccessful cooperatives in the country, other models of dairy farmer organizations are being explored, such as mutually aided cooperative societies (MACS) and producer companies.
Millions of small and marginal farmers in dairying who own two to three animals and produce an average of 5 litres comprise a critical portion of India’s dairy industry. Livestock development in general and dairy development activities in particular are key components of pro-poor development strategies because livestock distribution is much more equitable than land distribution. Thus, changes in the dairying environment have important implications for the smallholder farmers and for poverty reduction.
The following characterizes India’s dairy farming and its relevance to inclusive growth:
- Small and marginal farmers own 33 percent of land and about 60 percent of female cattle and buffaloes.
- Some 75 percent of rural households own, on average, two to four animals.
- Dairying is a part of the farming system, not a separate enterprise. Feed is mostly residual from crops, whereas cow dung is important for manure.
- Dairying provides a source of regular income, whereas income from agriculture is seasonal. This regular source of income has a huge impact on minimizing risks to income. There is some indication that areas where dairy is well developed have less incidence of farmer suicide.
- About a third of rural incomes are dependent upon dairying.
- Livestock is a security asset to be sold in times of crisis.
Government and the enabling environment
The dairy sector in India has traditionally been highly regulated. The government projects and programmes in place for enhancing dairy development include subsidies for developing infrastructure for milk processing and testing. The Clean Milk Production Programme is a centrally sponsored scheme that is being implemented by the State Department of Animal Husbandry, Dairying and Fisheries with several objectives: i) the creation and strengthening of necessary infrastructure for the production of quality milk and milk products at the farm level up to the points of consumption; ii) improvement of milking techniques; and iii) training to enhance awareness on the importance of hygienic milk production. Several other rural development initiatives support dairying, such as through the District Rural Development Agency and women’s self-help groups.
An area of government support that has not been capitalized on so far is the investment in promoting the nutritional aspects of milk, particularly pasteurized milk versus loose milk. Detailed information about policy regulations regarding the dairy sector in India is available online at www.indiandairy.com.