Contribution of Dairy Farming in the Economy

Milk production is a very important element of the whole dairy chain. Dairy cooperatives, helped to create strong network and linkages in millions of rural households scattered across the country. Milk contributes close to the 1/3rd of gross income of rural households. The livestock sector contributes to 4% of India’s GDP and the dairy sector comprises majority of share.

A sustained growth of milk production in India, growing at a CAGR of 5 per cent between 2010-16, and the leading position of milk among all the agricultural commodities have placed dairy in the forefront of the government’s commitment to double farmers’ income by 2022.

Key Challenges of the Dairy Sector in India

Quality a big concern – More than 70% of marketable surplus goes through informal channel where quality is a big concern. Sometimes quality is an issue in the formal channel as well. Quality of milk or value-added products are a barrier to entry to the export market, especially the USA and the EU.

Poor governance of cooperatives – Prices decided by cooperatives are not based on fat measurement, which affects farmer’s profitability. In addition, lower prices declared by cooperatives, results in low prices of milk paid by all the players in the industry.

Non-existent of extension facilities: Lack of adequate breeding and preventive care services to improve animal health, along with low access to credit and risk-taking ability makes farmers unable to increase their herd size.

Taxation on value added products: Taxation on value added products would cause the industry to reduce the milk prices paid to the dairy farmers. High rate might also increase the consumer prices of dairy products substantially.

The Way Forward

• Milk is highly perishable, therefore value addition such as processing, packaging, and conversion to long life products, such as sterilized milks (UHT), dahi, paneer, chhachh, lassi, shrikhand and so on, is more a necessity than a luxury. It is crucial that a softer view is taken while imposing GST and imperative to create special class for dairy products with minimum value-addition.
• The government should have a farmer-centric approach, as perhaps milk is the only industry that is able to pay to the dairy farmers more than 2/3 of price charged to the consumer. No other food processing industry in India is able to meet such high expectations of the farmers. Tax exemption on dairy industry should not be considered as a loss to the national exchequer but an investment that would spur growth in milk production, which eventually would enhance rural prosperity and increase the farmer’s income.
• In addition, there should be level playing field for private players and the cooperatives. There is very low competition to cooperatives because private sector was not allowed to participate until recently.
• Lastly, grants to be provided to strengthen extension services in areas of animal husbandry. Budget allocation to develop infrastructure setup in the milk procurement area for small and medium size operations, and subsidies to encourage rural entrepreneurship in areas of milk procurement such as collection center setup and credit correspondents.
• The government should establish formal breeding centres and subsequent sale of such cows and buffaloes to the farmers. It falls upon the government to bring some of the best technologies from Israel, as the private sector will be never be making such investments. In addition to the breeding centres, formal cow hostels, with the best milking technologies from Israel should be established.

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