Dairy Sector

Turning sour?

Print edition : July 07, 2017

Farmers and workers from the Jai Jawan Jai Kisan party discard thousands of litres of milk during a protest in Nagpur on June 3 demanding crop loan waiver, higher procurement prices and free electricity. Photo: S. Sudershan

India’s thriving dairy sector, which provides farmers with an alternative source of income, is beset by challenges, including the government’s new restrictive rules on cattle trade.

THE DAIRY SECTOR, WHICH HAS LARGELY been a stable one providing farmers with an alternative source of livelihood, is now facing challenges from the current agrarian crisis and the new rules restricting sale of cattle. Farmers and industry experts said that this could severely jeopardise the sector.

India was the world’s top milk producer in 2015-16 with 155.5 million tonnes. Dairying is an integral part of the farming system and shares a symbiotic relationship with agriculture.

“Recent announcements by the Centre have been very detrimental to cattle farmers and this will have an adverse impact on milk production,” said Sunil Sonawane, a farmer in Kolhapur district, Maharashtra. “The advantage with milk is that in case of crop failure or any agrarian crisis, most farmers will have a few cows and buffaloes that bail them out. Sale of milk helps tide over difficult situations and provides an extra income if the crop is successful. If this source of income is put at risk, which they are doing with the new cattle sale regulations, the farming community faces a very bleak future,” he added.

The new rules prohibit the sale of cows in animal markets for slaughter and to non-agriculturists. This will deprive the farmer of the income that traditionally came from selling non-milch and ageing cattle. Agriculturists are now the only ones permitted to buy cattle, but they will not be interested in non-milch or ageing animals, which are of little use to them. Feeding and maintaining livestock involves substantial costs and if an animal is of no use, the already distressed farmer is left with a massive liability.

“We will have to stop keeping cows if we cannot sell them to traders. We keep cows because the milk collected gives us a little money to run our day-to-day lives. If we get more, it helps maintain the land. The sale of animals sometimes pays for marriages, tuition, college fees, etc.,” said Sonawane, who owns three cows and a few buffaloes. “When they banned the sale of cows to slaughterhouses in order to ban beef, we felt the loss. This new rule adds further problems,” he added.

Savitri Salunke owns two cows which she keeps in the famous tabelas (milk yards) of Mumbai. She earns about Rs.600-650 a day from each cow. The monthly take-home amount after paying rent and animal maintenance would be approximately Rs.15,000 per animal. “What will we do when the cow stops producing milk?” she asked. “An old cow can get us between Rs.15,000 and Rs.20,000. Now we will have to take whatever the trader gives us. I have no bargaining power left.”

She added that buying a milch animal costs about Rs.80,000. Dairy farmers make the purchase because the return on investment is very good and reasonably quick. “If the economics are not favourable, we will not purchase cows or buffaloes henceforth,” she said.

According to the National Dairy Development Board (NDDB), an estimated one crore farmers are engaged in dairy farming. Most of them are small or marginal farmers owning two to five milch cows. The new cattle regulations could potentially affect a staggering number of farmers.

“Why would our government want to shoot itself in the foot? The fallout of the new rules will really affect the milk industry, which is thriving,” an analyst said.

India’s milk production has been growing at over 4 per cent per annum since 2000 and is projected to touch 160 million tonnes in 2017, according to the United States Department of Agriculture (USDA).

On no account can we afford to let milk production decline, said Mohan Jadav of the Gokul Cooperative Milk Union in Kolhapur. “The milk industry is a lifeline for lakhs of farmers. If the cooperative they belong to is doing well, then as members profits are divided among them. It is an added income,” he said.

An executive with a private dairy in Baramati said: “India’s milk consumption has increased with the introduction of a range of dairy products. Yogurt and flavoured milk, for instance, are new to the Indian palate but have found consumers. Tetra packaged milk is considered more hygienic by the higher income strata and the demand apparently is increasing. India may be the largest producer of milk in the world. Its consumption, however, is almost entirely domestic. There is potential for the industry to become a significant exporter and a global player. These new rules will affect milk [prospects].”

Silver lining may fade

In these times of agrarian distress, the milk industry has been a silver lining for lakhs of farmers. However, experts believe that unless close attention is paid to a few critical areas, the lining could fade. To begin with, the issue of procurement price needs to be addressed. Farmers have been demanding an increase in the price, which is Rs.21-24 per litre across States. Jadav said rising input costs and low procurement prices were pushing farmers into debt.

During a strike in Maharashtra in June, dairy farmers protested by pouring milk on the streets and demanded an increase in the procurement rate. Chief Minister Devendra Fadnavis said that the rate would be revised to Rs.27 a litre from July onwards.

Jadav said this would provide some relief to the farmers. However, it may come as a minor blow for cooperatives. While Gokul is among the more profitable ones, there are several in the State which are incurring loss or barely breaking even. “Another issue is paying the farmer on time. We have a 10-day cycle and ensure they get their payments accordingly. Not all cooperatives or even private companies are regular on this front. It must be very clearly understood that the farmer is dependent on these small amounts. It is part of the cooperative model and it must be followed strictly.”

While the cooperative model has been extremely successful in most States, post-liberalisation the sector has taken a few hard knocks. To begin with, some of them posted losses owing to blatant mismanagement and the inability to keep up with economic reforms. The entry of private players led to competition in the milk sheds (regions designated to a particular dairy cooperative), which were later protected by government regulations. Still, private companies put the cooperatives at risk.

Furthermore, the new entrants in the milk sector introduced products that took the market by storm. Different types of cheese, yogurt and flavoured milk, which were new to the Indian home, were happily embraced by urban and rural households. Many of the larger cooperative dairies had developed brands of their own, such as Nandini, Gokul, Sagar, Aavin and Warana. They need to step up to the plate by riding the new trends or remain as collection centres subject to the vagaries of the market. Clearly, sensing new trends and the market potential, the bigger cooperatives have moved forward by modernising and entering the market with their own brand of dairy products. The smaller ones, however, are lagging behind and, as a result, doing little for the farmer members.

Jadav pointed out that since milk was a perishable commodity, the cooperative would lose not just milk but profits if the supply/cold chain and other infrastructure were not sound. For instance, big dairies with deep pockets have put these systems in place, as a result of which farmers in the western region of Maharashtra benefit. However, those in Marathwada and Vidarbha are left with thousands of litres that cannot be used because of poor facilities. The farmer may still get his payment but the cooperative runs into losses and eventually that will affect the farmer who may be a member of the union.

Dairy cooperatives are committed to supporting the farmer, and private companies claim they do but in reality they do not. If the demand was low, Jadav said, the private player would not pick up the milk. This, once again, affected the farmer, he pointed out.

“Goa, Karnataka, and Haryana give their cooperatives a subsidy. For Rs.20 a litre given by the dairy, the State government adds another Rs.2 or Rs.4, which is paid to the farmers directly,” said Vaishali Nagawade of the ailing Mahanand Dairy in Maharashtra. She told mediapersons after the government announcement on hiking the procurement rate that this would not only help the farmer but the cooperatives too. She added that cheaper milk coming from other States into the big dairies in Maharashtra had also added to the problems of struggling cooperatives. “The State government should impose a tax on this and give the benefits to the farmer,” she said.

Consumption on rise

India’s per capita consumption of milk is 97 litres a year, compared with 285 litres in the United States. Yet, consumption is growing at a healthy 4.5 per cent annually, compared with just just 1.5 per cent in the West, according to the USDA. “The market is massive in India and dairy should be given a huge boost,” an analyst said.

The government has been introducing a series of schemes to encourage the dairy sector. For instance, loans are given for the purchase of high-yielding milch cattle and for expanding herd sizes. Additionally, farmers are urged to modernise and improve fodder and nutrition of the animals. “While in theory this is a good move, with so much flux in agriculture, farmers end up trapped as they spend so much but do not gain in the same proportion,” said the analyst.

The National Democratic Alliance (NDA) government introduced the Rashtriya Gokul Mission in 2014 which focusses on improving the genetic potential of indigenous breeds. The average milk yield of indigenous cattle and water buffaloes is 2.5 kilograms and 5.2 kg a day respectively, while the figure for exotic/crossbred cattle is 7.2 kg. However, the upkeep of crossbreeds was substantially higher, an agriculture expert said. “We need to encourage indigenous livestock for the long term,” he added.

Meanwhile, the NDDB is implementing phase I of the National Dairy Plan (NDP I) in 18 States, which stretches across the period between 2011-12 and 2018-19. NDP I is focussed on increasing milk production and productivity of animals through support in areas such as breeding services and animal nutrition. The programme also aims at enhancing village-level procurement systems such as milk weighing, testing, collection, and cooling, as well as extension services and dairy cooperative development.

The country’s three-tier cooperative dairy system (comprising village-level cooperative societies, district-level unions and State-level federations) has been a champion at protecting producer prices and regulating consumer prices. The country boasts 96,000 local dairy cooperatives, 170 milk producers’ unions and 15 State cooperative federations.

However, when India’s neoliberal reforms identified dairy as a high growth sector, the policies shifted focus from the small farmer and became industry-centric. In 2011, the government allowed the entry of foreign dairy players with 100 per cent foreign direct investment in food processing, including milk and milk products, and also provided several tax breaks to them. “This shook up the socio-economic model of dairy and if there is a long-term vision for the sector, it does not include the small farmer,” an agriculturist said.

Operation Flood, or the “White Revolution” launched in 1970, transformed India from a milk-deficient nation into a milk-surplus one. It was the world’s largest dairy development programme. In 30 years it doubled milk available per person and made dairy farming India’s largest self-sustainable rural employment generator. The ideology was that milk would not be just mass-produced but produced by the masses.

However, if the problems of the dairy sector are not taken seriously, it could have far-reaching consequences. What took decades to build could collapse in a matter of years.

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