What is pushing India's small dairy farmers out of business?

A new study establishes a link between global development in dairy industries and slowing down of local small-scale dairy business

By Jitendra
Published: Wednesday 18 October 2017
The procurement price for milk in India has slumped due to the global crisis (Credit: ILRI/Jules Mateo)

India’s ongoing milk crisis has been pushing small dairy farmers out of business and helping dairy multinationals to expand at their expense, finds a new report. It argues that localised and people-driven milk markets based on agro-ecological livestock culture would be on its way out due to current milk crisis.

Titled ’The milk crisis in India: The story behind the numbers’, the report has documented evidence from the ground. It establishes a link between global development in dairy industries and slowing down of local small-scale dairy business.

The report is prepared by the Dairy Working Group of the Food Sovereignty Alliance, India, a Hyderabad-based non-profit. The working group comprises academicians, environmentalists, economists and dairy experts.

Global crisis, local impact

The global slump in skimmed milk powder (SMP) prices since 2015, according to the report, is a result of China and Russia stopping import of SMP. It created glut in the EU and sent ripples in the global market. The situation worsened after April 2015 when the EU scrapped its milk quota, which regulates the production of milk and control its overproduction. The increase in production of milk in these countries has affected export of SMP from India.

The export from India during fiscal year 2014-15 reduced to 30,000 tonnes as compared to 130,000 tonnes the year before.

In April 2015, SMP was being sold by private dairies at Rs 180 per kg, compared to Rs 270 in April 2014.

The Indian dairy companies had attempted to dispose of SMP stocks in domestic market after recombining it with butter fat and converting it back to liquid milk. It led to slump in procurement price of milk in domestic market.

Butter fat, which is needed to make milk from SMP, was imported in a large amount at a cheap rate from the EU and the US in 2014-15. The imports of subsidised butter fat into India rose from 25,000 kg in April 2014 to 704,167 kg in November 2015. Meanwhile, India’s export of butter fat reduced from 2 million kg in January 2014 to around zero in March 2016.

The availability of this milk further depressed the procurement prices. This development was ignored by the Indian government, and import was allowed without additional regulation.

Less money from milk is pushing small dairy farmers in debt. While this trend is global, Indian farmers have not received any support from the government even as their counterparts in the EU and USA have.

Bad for producer and consumer

The decision of private dairies and cooperatives to dispose SMP in the domestic market led to a price war, resulting in a further fall of prices and even lower procurement price.

While cheaper milk brought temporary relief to the consumers, the quality of milk available is poorer. The milk made from SMP has lower nutritional value as compared to fresh milk. Fresh milk is richer in vitamins and minerals than SMP. Moreover, a consumer is not able to determine the age of milk.

Indian farmer unprotected

Dip in price due to surplus in global market has given opportunity to big companies to expand into other countries. It pushed small dairy farmers out of the market but helped big corporations and cooperatives to expand their business. Small dairy farmers are the backbone of India’s milk production.

Our international counterparts such as the USA, EU and New Zealand have strategies in place to address the issue of plenty of low-priced milk in the market. They have started capturing the world market through investment, mergers and partnership across the globe.

The local and small dairy farmers became contract-based workers for big corporations. They have now become more vulnerable as they are now part of ecologically unsustainable production strategies.

Resilience in locally dependent markets

The report presents evidence that local procurers and sellers were less affected by the global slump.

Vijaya Dairy in Telangana, Vishakha Dairy in Vishakapatnam, Kalahasthi Cooperative in Andhra Pradesh were some such organised dairy processors procuring and selling locally, which showed resilience in the market slowdown.

The informal people’s market, which link local producers via small vendors to local consumers which operating within 10-30 kilometres, have not been affected severly.

The procurement prices for small farmers have reduced even as the cost of production increased due to drought. Before May 2015, the production cost for a litre of milk was Rs 26 per litre. Today, because of a severe drought in the region, the cost of production is Rs 30 per litre of milk. The procurement cost varies between Rs 28-35 per litre depends on content of fat. Before May 2015, the cost of milk procurement was varied between Rs 32-38 per litre.

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