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RCEP & the conundrum of Indian dairy industry

• Stakeholders of India’s dairy industry fear that bringing dairy products into the ambit of the RCEP agreement will have disastrous effects for their business.
• India is currently the largest producer and consumer of milk in the world, with a projected milk production of 330 million tonnes by 2033.
• In this scenario, increased imports from countries like New Zealand and Australia could cause a glut in the domestic market.
• Seeing India’s self sufficiency in dairy production and the associated livelihoods it provides for 80 million rural households, the Indian government should consider keeping the sector outside the ambit of RCEP.

Ever since India left its doors ajar to the the world, it sought different ways to bolster its trade with other nations and to give a boost to its economic growth. This is evident in the repertoire of trade pacts and multilateral deals that it signed since the summer of 1991. But the less-than-ideal outcomes of past trade deals have led both industry and government to view future agreements with suspicion. While negotiations in many agreements have reached an agonising stalemate, the Regional Comprehensive Economic Partnership Agreement (RCEP) is being intensely debated, as it is expected to be closed either way this year.

Trade agreements in the real world are rarely known to offer win-win solutions. This disjuncture can be attributed to the simple fact that negotiating countries at different levels of development may have contradictory interests on a plethora of issues. For instance, disagreements could be born out of the deal’s direct impact on an individual country’s domestic enterprises, growth, employment, and investment. This is particularly the case with RCEP membership, which would make India part of a grouping that accounts for 47.4% of the global population, 32.2% of the global economy, and 29.1% of global trade. However, a number of sectors in India are concerned that they have much more to lose than gain from this agreement.

One such sector is the dairy industry. Though superficially RCEP presents a major trade opportunity to India, various stakeholders of India’s dairy industry fear that bringing dairy products (HS 0401 to HS 0406) into the ambit of the agreement will have disastrous effects for their business. For starters, there are fears that imports from New Zealand, the world’s largest exporter of milk and dairy products according to the International Trade Centre, could make the country import dependent. This is because these foreign players have played on the water crisis that is likely to affect India & its farming community in the future.

As RS Sodhi, managing director of Gujarat Co-operative Milk Marketing Federation Limited (Amul) explicates, “They are also projecting crises of fodder and water in the near future which would lead to further crisis in animal-rearing. They have a hidden agenda of destroying India’s self-reliant dairy industry. They have already destroyed the dairy market of Sri Lanka and countries of the Far East.” This logic, however, seems misplaced according to Mr. Sodhi, “India will have a surplus in milk products and also the opportunity to export them. Also, India would have good availability of roughage and other fodders, along with water.”

What in reality, could be the vested interest behind this lobby is the fact that India is the world’s largest producer & consumer of dairy. It has been projected by Niti Aayog that India’s milk production is likely grow to 330 million tonnes by 2033 from the current 180 MT, while the projected demand is about 292 MT. This implies that India will have sufficient surplus to meet its own requirement, and hence would definitely not need to import milk products even after a decade.

Source: NITI Aayog

Potentially low tariffs on milk and milk products would therefore lead to a glut in the local market as New Zealand & Australia dump their dairy products in India and precipitate a collapse in prices. While milk production cost in India is higher than that of New Zealand, the consumer price is still less here. Skimmed milk powder prices in international markets are Rs 160 a kg; in India, it is Rs 280-290 a kg. “Our country will be again pushed into a state of import dependence, jeopardizing nutritional security,” notes NDDB chairman Dilip Rath. This could also deal a severe blow to the livelihoods of those dependent on dairy farming. According to official estimates, a whopping 80 million Indian rural households (poor and small farmers) are engaged in milk production.

The present structure of RCEP puts dairy in a vulnerable situation, and seems to be counter-productive when viewed against the backdrop of the government’s attempts to boost the domestic Indian industry. India should continue to maintain its position of proposed dual tariff structure in the RCEP as it will help India to guard its tariff lines, which are more vulnerable to cheap imports. It could also emphasize on a special and differential treatment based on stages of economic development. Moreover, in case dairy is brought within the scope of the deal, the government may have to provide financial support to India’s dairy industry of around Rs 8-10 per kg to cushion it against the indentation of cheaper dairy imports. Considering the potential loss to the industry, dairy may be best kept outside the ambit of the RCEP agreement.

 

 

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