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RCEP: A White Revolution for exports

White Revolution, RCEP, imports of dairy products, milk processing market, indian dairy, milk processing market, New Zealand, Australia

By Debesh Roy

India's decision not to join the Regional Comprehensive Economic Partnership (RCEP) in its present form has brought a sense of relief in the dairy industry. Fear of the country being flooded with imports of dairy products from New Zealand and Australia triggered jitters in the dairy sector, which is dominated by small-farmer oriented cooperative sector.

There was unwillingness on the part of fifteen members of RCEP to engage in serious negotiations with India on its proposals for safeguards, viz an auto-trigger mechanism that would allow India to raise tariffs in cases of surge in imports of products that cross a certain threshold, rules of origin, and a 2014 base year for tariff reductions instead of 2013, to safeguard its steel and dairy industries, along with the demand for market access to India's services exports. Hence, India had no other option but to withdraw from the largest Regional Trade Agreement (RTA) in the world.

According to the High Level Advisory Group (HLAG) set up by the Ministry of Commerce, Government of India (GoI), lack of competitiveness of India's exports acts as a major bottleneck in tapping potential from trade enabled through FTAs/RTAs. Therefore, considering India's objective of becoming an export-led $5 trillion economy by 2024-25, it is high time our industries (including dairy) become globally competitive and enter into FTAs/ RTAs to take the country's exports to a much higher trajectory, and, in the process, enable substantial rise in the income of small dairy farmers.

The globally acclaimed 'White Revolution' had enabled India to become the largest producer of milk in the world. At 176 million tonnes (MT) the country produced about 20% of the global milk output in 2017-18. However, with exports of dairy products valued at $197.27 million in 2018, India ranked 38th in the world, with a share of 0.26% of global exports ($74,519.60 million). This compares poorly vis-à-vis Germany, the largest exporter in the world, which exported dairy products valued at $9,459 million in 2018. Exports of dairy products by RCEP members New Zealand and Australia were valued at $8,865.42 million (third rank) and $1,896.17 million (12th rank), respectively. India's low value of dairy exports may be attributed mainly to high domestic consumption demand for milk and milk products, very low yield of milk output (1.1 tonnes/animal compared to 3.9 tonnes/animal and 5.9 tonnes/animal for New Zealand and Australia, respectively), and low exportable surplus of processed dairy products due to increasing demand in urban areas.

The importance of the dairy sector in India can be gauged from the fact that it is dominated by 16 million small milk producers who supply their milk to 1,85,903 dairy cooperative societies across the country, providing livelihood support to millions of families. However, about 81% of Indian dairy and milk processing market is part of the unorganised sector, which produces milk under unhygienic conditions. This reduces the overall quality and nutrition levels of the milk produced, thereby further restricting exportable quantity of dairy products. Also, the sector lacks proper infrastructure for milk preservation, processing and transportation in most states.

India's export of dairy products is led by Gujarat Cooperative Milk Marketing Federation Ltd (Amul), which exports sixteen dairy products to USA, Australia, New Zealand, and countries in South Asia, Southeast Asia and the Middle East. Amul, along with Mother Dairy, and private and multinational dairy companies can become globally competitive by strengthening and modernising their already professionally managed and efficient dairy value chain. There is also a need for milk marketing federations of all states to modernise value-chain infrastructure with a view to producing high value dairy products efficiently.

In this context, GoI has created a corpus of Rs 8,004 crore with NABARD under Dairy Infrastructure Development Fund (DIDF) to provide loans to National Dairy Development Board (NDDB) / National Cooperative Development Corporation (NCDC) for on-lending to eligible cooperative milk unions, state cooperative dairy federations, multi-state milk cooperatives, milk producer companies, and NDDB subsidiaries, with the objective of modernising and augmenting dairy infrastructure for milk processing and value addition while ensuring optimum price realisation by the primary producers.

The apprehension that signing of RCEP agreement would flood the Indian dairy market with cheaper imports from New Zealand and Australia is based on the admission that Indian dairy industry is not yet ready to face global competition. Presently, imports of dairy products form these countries is minuscule, and India had a trade surplus of dairy products with Australia during the last three years as well as with New Zealand in 2018-19 (see graphic).

However, had India decided to join RCEP, the trade balance with these countries would have turned negative. New Zealand exports 95% of it dairy products, and about 84% of its milk supply is controlled by Fonterra, the largest exporter of dairy products in the world. Fonterra has already entered the Indian market by way of an equal joint venture with Future Consumer, offering a wide range of nutritional dairy products targeted at urban Indian consumers. Fonterra is also one of the world's largest investors in dairy innovation and has one of the largest R&D facilities in the world. The Fonterra Future Dairy plans to become one of the top four dairy players in India within the next four to five years. Therefore, the likes of Amul and Mother Dairy need to raise their spending on R&D significantly, to compete with global leaders like Fonterra.

In order to boost export of dairy products, GoI needs to consider development of Dairy Export Zones (DEZs) in collaboration with state governments, in leading milk producing states like UP, Rajasthan, Gujarat, Andhra Pradesh, Punjab, Maharashtra, MP, Haryana, Tamil Nadu, and West Bengal. Such zones would involve creation of common infrastructure like cold chain, chilling plants, processing facilities, R&D facilities, logistics, and connectivity to ports and airports. Dairy producers in the cooperative, private, and multinational sectors would need to set up modern hi-tech dairy processing units in the DEZs, for producing high quality products for the global market.

The dairy producing units in the suggested DEZs can enter into contract farming arrangements with dairy farmer producer organisations (FPOs)/ farmer producer companies (FPCs) for sourcing milk. Such an arrangement would be mutually beneficial in terms of cost efficiency and higher export revenue to the dairy companies, and higher income to farmers. State governments, therefore, need to enact the model Agriculture Produce and Livestock Contract Farming (Promotion and Facilitation) Act, 2018, urgently.

The Ricardian theory of comparative advantage has showed why there are significant benefits from globalisation. Therefore, if India's dairy sector becomes globally competitive, it can benefit from its comparative advantage when it chooses to join RCEP or any other RTAs/FTAs in the future.

The author is senior officer at NABARD
Views are personal