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Devinder Sharma writes on the destruction of India's white revolution
April 2002 : The alarm bells were not loud enough. The import of 17,000 tonnes of skimmed milk powder from Denmark and that too at zero duty a couple of years back had surely resulted in a political uproar from the frontline agricultural state of Punjab. A little tinkering in the import duty structure was drowned in the deafening chorus from the country's mainline economists who always feel agitated whenever any safeguard measures are adopted to protect the country's farmers. The promised restructuring to protect the domestic dairy industry, which in turn provides livelihood to millions of subsistence farmers, was soon forgotten. Under political pressure, the government announced a two-tier import duty structure for milk, which it is finding it difficult to implement. In any case, the imposition of 60 per cent duty on milk powder imports (after allowing for 10,000 tonnes at 15 per cent duty) is unlikely to stop the flood of imports. But still the economists were unhappy as these measures actually restricted the earnings of the western farmers ! The dairy industry is however once again up in arms. This time the Indian dairy industry sees a deep conspiracy in the dumping of butter oil by major foreign players. New Zealand, with an import order of 12,000 metric tonne, has already dumped a large quantity of butter oil into India. Even after paying an import duty of 35.2 per cent, the butter oil imports have been at less than US $ 1,000 per tonne against the prevailing global price of US $1,300 per tonne. In simple terms, New Zealand's butter oil is roughly cheaper by Rs 15 a kg, made available at Rs 64.54 per kg compared to the prevailing international prices of Rs 87.40 per kg. And that too when New Zealand claims not to be providing any subsidy to its dairy farmers. The resulting crash in the domestic prices of butter oil was therefore expected. The price of butter oil (ghee) before the recent import was in the range of Rs 100 to Rs 120 per kg, which has subsequently come down by 10 to 15 per cent. While the consumers are happy, the real price has to be paid by the dairy farmers. Since the Indian dairy farmers are paid on the basis of recovery of the fat (broadly ghee) in the milk has already suffered an erosion in the milk value by 15 per cent. While the imports were coming in, Finance Minister Yashwant Sinha was busy explaining the implications of his Budget 2002-03. What he did not however explain was that one of the major decisions that he announced would in reality begin the end of the milk cooperatives. The decision to amend the Milk and Milk products Order, 1992 (MMPO) so as to remove restrictions on new milk processing capacity actually spells a death-knell for the milk cooperatives, a sector which provides economic empowerment to over 80 million people, mostly rural women. The decision means that private milk processing plants and companies can now set up dairy plants processing more than 10,000 litres a day without any registration that requires a declaration of a 'milk shed' area. What happens to the largest cooperative movement in the country in the milk sector is a lesson for other cooperative ventures. It is not as if the country is faced with milk shortage that calls for increasing imports to meet the growing domestic requirement. In recent years, India has emerged as the biggest producer of milk with an output of 81 million tonnes in 2000-01, outpacing 72 million tonnes achieved in the United States. Indian milk production, however, in contrast to other milk producing countries, is characterised by millions of small and marginal farmers including landless milk producers for whom dairying is not only a business but also the main source of employment. On the other hand, milk currently generates more than 20 per cent of farm cash receipts in most advanced industrialised economies. In India, it took nearly thirty years to achieve self-sufficiency in milk production, and in the process emerge as the biggest milk producer in the world. Ever since the launch of Operation Flood in 1969-70, before which the Indian dairy industry was in the depths of despair, the effort has been to involve the farmers through a network of cooperatives, owned and controlled by farmers, with an intelligent mix of policies that provided the incentive for enhancing productivity and production. More than 80 lakh dairy farmers, mostly women , are members of more than 60,000 dairy cooperatives. The dairy cooperatives have been the road that has pulled millions of poor from the poverty trap. And yet, the National Dairy Development Board (NDDB), which spearheaded India's white revolution, failed to stand up and speak on behalf of millions of dairymen in the cooperative institutions whose very survival is at stake. With Dr Verghese Kurien, the strong man of the Indian dairy cooperatives quietly retiring, the NDDB has probably lost its tower of strength. It no longer is being revered for its stellar role in ushering milk 'self-sufficiency'. In fact, the government is trying all kinds of permutation and combinations thereby allowing the gains of the white revolution to be frittered away. Not realising, that dismantling the NDDB would sacrifice the livelihood of millions of small and marginal farmers at the altar of market economy. Coming back to the issue of trade, India is perhaps the only major milk producer, which has a negligible share in international milk trade. Even with 81 million tonnes of production, Indian export of skimmed milk powder and butter has rarely exceeded a few hundred tonnes. In contrast, the world's biggest exporter, New Zealand, with an annual milk production of a mere 12 million tonnes, exports about 4.5 million tonnes of milk powder. This is essentially because India has a huge domestic market whereas the limited domestic market gives industrialised countries the added incentive to export. Even before the WTO began asserting its mandate, the Indian government had been toying with the idea of opening up the vast Indian market for unrestrained imports of skimmed milk powder and milk products. Following the government's economic liberalisation policy, milk powder, which used to be on the restricted list (for imports) was put on the open general license in 1995-96. With the import of skimmed milk powder touching an all-time high of over 17,000 tonnes two years abck and that too at zero import duty, the pen-door policy to MNCs has only placed the national milk grid in jeopardy. Despite the imports, market price of milk have been on the rise, synthetic and spurious milk has flooded the market, and as if this is not enough, milk has been diverted from the malnourished children and the burgeoning middle class to 'high-margin' products such as milk powder, chocolates and ice-cream. The tarification of non-tariff barriers under the WTO has forced India to bind the import of milk powder at zero duty. This was primarily because milk powder import had so far remained on the restricted list and therefore was devoid of any non-tariff barriers or what is known as quantitative restrictions (QRs). In comparison, New Zealand imposes a 12 per cent import duty and the United States and the European Union have 'bound' duties at a specific rate of US $ 865 and US$ 1,188 per tonne, respectively. The imports of milk powder from Denmark into India was for instance contracted at US $1,400 per tonne, even as the US and the EU are providing a subsidy of US $ 1,028 and US $ 959 per tonne of subsidy. The import price, with the subsidy built-in, is substantially lower than the cost of production in India! The logic behind allowing MNCs to import milk powder without countervailing duties is difficult to fathom, when their own governments are giving them massive subsidies. The Producer Subsidy Equivalent, which measures the aggregate quantum of subsidy as a percentage of the value of the milk produced, in 1997 stood at 82 per cent in Japan, 59 per cent in Canada, 54 per cent in the European Union, 47 per cent in the US and 23 per cent in Australia. Furthermore, the per tonne subsidy of US $ 811 for milk powder declared by the EU in 1998 or the US $ 875 per tonne subsidy provided by the US under its Dairy Export Incentive Programme constituted roughly 55 per cent of the prevailing international price of US $ 1,500 per tonne the same year. Such has been the high level of protection provided to milk producers by the developed countries that even with the stipulated reduction in both the volume and the amount of subsidies, the EU and the US can continue to flood and dump its highly subsidised milk and milk powder onto the unsuspecting developing countries, which have little safeguard mechanisms to protect their small dairy producers. The signs are therefore ominous. Highly subsidised imports of milk flowing into India will only reinforce the mechanism of further marginalisation of millions of milk producers. Thousands of dairy cooperatives, which literally pulled the poverty-stricken masses out into a path of economic emancipation will collapse faced with imports of cheap and highly subsidised imports. Devinder Sharma
April 2002 Devinder Sharma is a New Delhi-based food and trade policy analyst. Among his recent works include two books GATT to WTO: Seeds of Despair and In the Famine Trap