• Traditionally India has been exporting dairy products, although the quantity is not high by international standards. During the year 2007, some 40000 metric tonnes of dairy products were exported which accounts for a fraction of total milk production in the country.

• In the wake of rising inflation, a meeting was held under the chairmanship of Secretary, AH, Dairying and Fisheries, GOI, on 11th April 2008. Fearing rise in the prices leading to the inflation, it was decided to take measures to control price rise. Accordingly, the export incentives on dairy products were withdrawn vide Ministry of Commerce and Industry notification No. 4, 5, and 6 dated 17th April, 2008. This included the benefit of VKGUY Scheme and Focus Market Scheme as well as benefit of DEPB covering SMP, Casein and any other milk product. In addition, the import of SMP was liberalized and the import duty reduced from 15% to 5%.

• The above measures appear to have made an impact on the availability and price of milk in the country. Abandoned quantity of milk is available throughout the country. There has been no appreciable increase in the price of milk to the consumer. There has been increase in the procurement price paid to the milk producers in many states both in north and south India but these increases have been absorbed by the state level Federation and the processing plants of the private entrepreneurs. Therefore, while the overall availability of milk has increased the consumer has been protected. One can safely say that the milk situation in India has been managed very satisfactorily, despite high inflation.

• There are differences in the pattern of milk production in the north and south of India. In the northern states, where the milk is predominantly from buffalo, the production exhibit marked seasonality in production; flush and lean seasons. The production declines during the summer months. In southern states, however, the bulk of the milk production is derived from cows and there is no marked seasonality in the production in summer and winter. This year, the onset of monsoon has been early throughout the country resulting in cooler months and availability of grazing area. As a result, even in north this year the quantity of milk available has been satisfactory and much larger than those of the previous years.

• The Indian Dairy Association has been reviewing the situation by holding periodic meetings with the dairy processors both from the private and cooperative sector in regard to availability of milk, milk products and their prices. IDA monitors the prices of major milk products like SMP, Ghee, Butter and Infant Food and the findings are published in the “Indian Dairyman” - a monthly publication of IDA circulated to all large section of dairy community. It has been observed that while there has not been any appreciable increase in the price of milk, the price of milk products specially SMP has gone down. There has been a slight increase in the price of ghee which is likely to even out shortly.

• In a meeting held in IDA on July 16, 2008 with the dairy entrepreneurs, the position in regard to availability of milk and milk products and their export was reviewed. It was observed that better prices paid to milk producers by the cooperative unions and also by the private sector has resulted in increased milk production in all parts of the country. The milk collection in cooperative as well as in the private sector is quite high and it is expected to continue to be more than satisfactory during the period August to December 2008 when flush period would set in. It is feared that in such a situation the plants will have problem to handle the abandoned milk available during the flush season. In regard to SMP, country has sufficient stocks to cater to the lean season. The quantity of SMP held by various cooperative and private plants was reported to be between 59,000 to 65,000 mt. The industry has no idea as to how to dispose off the accumulated stock of over 60,000 tonnes, since these may not be required for reconstitution of milk for domestic consumption. The international prices of SMP are hovering around US $ 3100 per mt (against US $ 5200 per mt a year ago). Private sector has made huge investment in the processing plant anticipating an export of 1,00,000 mt during 2008-09. In regard to casein, it was reported that all the casein produced in the country is exported since there is no domestic market for the casein. Looking at the growing demand for casein in the international market many casein plants have been set up in the country and a substantial investment has been made in these plants which can be serviced only through viable export of casein. The removal of incentives on export of milk products has put a serious limitations on these plants. Presently only negligible quantity of casein is being exported.

• It was also reported in the IDA Review meeting that the onset of flush season in north India is round the corner. Unless measures are taken to encourage export of milk product it will result in inability of the processing plants to collect all the milk available in their milksheds. On account of good prices paid, the producers in most parts of the country have increased their production by increasing their stock, better feeding and adopting to better management practices. The entire dairy sector feels that immediate measures are required to handle the situation. New infrastructure is needed for accommodating the growth which is over 4 per cent every year. Further the old stocks of SMP need to be cleared to create space for new stocks. At present there is no incentive for them to invest a infrastructure to process additional quantity to accommodate growth. There is stagnancy in cooperative sector also. Cooperatives like Kerala Milk Marketing Federation and Tamil Nadu Cooperative Milk Federation have not taken up expansion of new processing capacity during the last many years. This may result in stagnation of the dairy sector in the country which has been otherwise growing and showing a satisfactory growth.

• As indicated above, industry has built huge capacity to produce SMP taking into account a potential of 1,00,000 tonnes of SMP for export. The withdrawal of export incentives is having negative impact on export promotion. It would not be out of place to mention that export incentives have not been withdrawn for other food products inspite of increase in their prices much more than milk. This is to some extent discriminatory as far as the milk producers are concerned.

• According to a report published in Business Line of July 21, 2008, dairy products prices may fall on rise in output (September-August 2008-09) as production and exports from USA and European Union improves their availability in the world market indicating Indian dairy sector would have serious problem in case accommodated stock are not liquidated immediately (copy of published report enclosed in Annexure).

• PROPOSAL
  In the light of what has been said above, it is felt that unless the incentive on export of milk products are restored the dairy sector is likely to receive serious set back. The amount of export incentive last year to milk products was only Rs. 27 crores which is negligible taking into accounts the benefits being given to the farmers for producing other agricultural commodities. It is therefore, strongly recommended that the following export incentives may be restored with immediate effect:
  (i) Benefit of VKGUY Scheme and Focus Market Scheme
  (ii) Benefit of DEPB Rate under Sl.No. 22C and 22D, Casein of all type appearing at Sl. No. 571 of product code 62
  (iii) Any other restriction announced by the Government subsequent to the withdrawal of incentives to dairy products under the notification dated 17.4.2008.

New Delhi                                                                                                                               (N.R. Bhasin)
July 25, 2008                                                                                                          President, Indian Dairy Association