India withdrew from the RCEP


The Comprehensive Economic Cooperation Agreement (CECA) between India and Australia is expected to face rough weather with the Government committing to open the dairy sector which is being opposed by the farmers’ organizations. 

Why did India withdrew from the RCEP:

  • India’s withdrawal from the Regional Comprehensive Economic Partnership (RCEP) is a major victory for the farmer’s organizations, trade unions, associations of small and medium industrial producers and civil society groups, which had organized widespread agitations against the free trade agreement. The Indian government has bowed to their demands and refused to join RCEP.
  • The Bharatiya Kisan Union said it was against Regional Comprehensive Economic Partnership negotiations because of dairy commitments and will oppose the India-Australia CECA because of the same factors. 
  • Some of the major players in the global milk trade like Australia and New Zealand are in the RCEP agreement.
  • Over the last 25 years, Indian policy has consciously encouraged the growth of private milk companies. At present, these firms are forced to buy milk from Indian farmers.
    • The reason is that the applied tariff for foreign dairy products in India is about 35%.
    • The bound tariff would have fallen to zero if India had signed RCEP.
  • It would have then been far more profitable for firms to import milk from New Zealand or Australia rather than buy it from Indian farmers. Hence, India was in the opposition to the agreement.
  • Moreover, there is no foreseeable future where India would be milk deprived. According to NITI Aayog, India is likely to be a milk-surplus country by 2033.

How come milk price from New Zealand and Australia is so low?

  • The unit cost of milk production is relatively low in countries like New Zealand because of extensive grazing lands (which reduce feed costs), mechanized operations and the advantages of economies of large-scale production, and the high productivity of milch animals (about 30 L/day). 
  • In addition, New Zealand government policy has consciously helped its major company, Fonterra, to become the dairy giant that it is. 
  • Fonterra, which controls 90% of the New Zealand milk market and one-third of world trade in milk, is feared even by large American and European dairy firms. 
  • A key demand of American dairy firms during the TPP negotiations was that New Zealand should break up and end the monopoly of Fonterra.

Why joining the RCEP would have proven suicidal for India’s dairy sector?

  1. Fear of Tariffs
  2. The key fear of the dairy sector was that tariff clauses for agriculture in the RCEP are much more severe compared to the existing World Trade Organization (WTO) agreement. 
  3. While the WTO allows a country to fix tariffs up to a certain maximum, or bound tariff, for a given commodity line, the RCEP binds countries to reduce that level to zero within the next 15 years. 
  4. Currently, India’s average bound tariff for dairy products is about 63.8% while its average applied tariff is 34.8%.
  5. A self-sufficient sector
  6. India’s dairy sector provides livelihood to about 70 million households. 
  7. A key feature of India’s dairy sector is the predominance of small producers. In 2017, if the average herd size in a dairy farm was 191 in the U.S., 355 in Oceania, 148 in the U.K. and 160 in Denmark, it was just 2 in India
  8. Yet, due to Operation Flood after the 1960s, India’s contribution to world milk production rose from 5% in 1970 to 20% in 2018. Today, India is largely self-sufficient in milk production. It does not import or export milk in any significant quantity.
  9. If we consider global milk trade, developed countries account for 79% of the total world export of milk. Major players are the U.S., the EU, Australia and New Zealand. 
    1. A country like New Zealand exports 93% of its milk production. 
  10. On the other hand, developing countries account for 80% of the world’s total milk imports. 
    1. Though India is self-sufficient in milk production, China imports about 30% of its milk requirement.
  11. Thus, some of the major players in the global milk trade are in the RCEP region. About 51% of the global trade of milk, 45% of the global trade of skimmed milk powder (SMP), 38% of the global trade of butter oil, 35% of the global trade of cheese and 31% of the global trade of butter takes place in the RCEP region. 
  12. This is why Australia and New Zealand, deprived of the lucrative markets in the U.S. after the demise of the Trans Pacific Partnership (TPP), have had a deep interest in the RCEP agreement.
  13. Growth of MNCs
  14. Over the last 25 years, Indian policy has consciously encouraged the growth of private milk companies. Milk cooperatives, which played a major role during Operation Flood, are no more seen as engines of growth. 
  15. Policy has also favoured the entry of multinational dairy corporations into the Indian dairy sector, through joint ventures, mergers and acquisitions.
  16. Multinational milk firms have opened shop in India in the hope that the Indian dairy sector would soon be opened up. 
    1. For instance, the Swiss firm Nestlé was the largest private purchaser of milk in India in 2019. The French milk firm Lactalis entered India in 2014 and has taken over Tirumala Milk Products in Hyderabad, Anik Industries in Indore, and Prabhat Dairy. 
    1. Another French firm, Danone, has invested ₹182 crore in the yoghurt brand Epigamia. New Zealand’s Fonterra Dairy has a 50:50 joint venture with Kishore Biyani’s Future Consumer products.
  17. In other words, multinational dairy firms had been building a strong presence in India even prior to the RCEP talks. At present, these firms are forced to buy milk from Indian farmers. 
  18. The reason is that the applied tariff for dairy products in India is about 35%. The bound tariff would have fallen to zero if the RCEP had come into effect. It would have then been far more profitable for firms to import milk from New Zealand or Australia rather than buy it from Indian farmers. The sale price of milk received by Indian farmers would have fallen sharply.
  19. The export price of SMP from New Zealand is about ₹150 per kg. The domestic price of SMP in India is about ₹300 per kg. 
  20. An average dairy farmer in India receives ₹30 per litre of milk. According to estimations made by Amul, if free imports of SMP from New Zealand are permitted, the average price for milk received by an Indian dairy farmer would fall to ₹19 per L. 
  21. False arguments

Two arguments were raised in favour of India signing the RCEP. 

  • First, it was argued that India would soon become a milk-deficient country and be forced to import milk. Hence, it would be better if India enters the RCEP today rather than later. 
    • Forecasts from Niti Aayog show that this argument is wrong. In 2033, India’s milk production would rise to 330 MMT while its milk demand would be 292 MMT. Thus, India is likely to be a milk-surplus country by 2033.
  • Second, it was argued that the quantity of milk imports from New Zealand to India are unlikely to exceed 5% of their total exports. As a result, its impact on Indian prices would be insignificant. This too is a false argument. 
    • As data put together by Amul show, 5% of New Zealand’s exports in this sector is enough to flood India’s domestic market. It is enough to account for 30% of the Indian market for milk powders, 40% of the Indian market for cheese, and 21% of the Indian market for butter oil. These numbers are significant, and enough to ensure that Indian dairy prices plummet. 
  • If there are 70 million households dependent on dairy in India, the corresponding number is just 10,000 in New Zealand and 6,300 in Australia. Reasoned analysis shows the socio-economic costs of India becoming a party to the RCEP agreement. 

About the Dairy Sector in India

  • Dairy is one of the biggest agri- businesses in India and a significant contributor to the Indian economy. 
  • It is the largest single agricultural commodity with a 4 % share in the economy. 
  • India is the largest producer of milk globally with 188 million MT production in 2019-20. It produces over one-fifth of the global milk production
  • Organizations like Amul, Mother Dairy, Kwality Limited, etc. have played a pivotal role in expanding the production. Amul today has over 3.6 million milk producers nationwide.
  • Further, there has been a proliferation of private dairy enterprises that now account for more than 60 % of dairy processing capacity in the country.
  • In the Gross Value Added (GVA) from agriculture, the livestock sector contributed 28 percent in 2019-20. Further, India witnesses a 6% growth rate in milk production every year.
  • The dairy sector serves a wide range of consumer needs too – from protein supplements and health foods to indulgence foods such as yogurt and ice creams.

Significance of the Dairy Sector in India

  • Tackling agricultural uncertainties: Farmers keep 2-5 milk animals for livelihood. They provide great support to them, especially during drought and flood. Further, dairying is not a seasonal occupation in nature, like agriculture.
  • Nutritional Support: The milk and associated products have immensely helped India in reducing the malnutrition and undernourishment levels in the country. Thus, the dairy sector is indispensable for meeting the nutritional requirement of the country’s rising population. 
  • Employment Generation: It is a significant contributor to farmers’ income as approximately 70 million farmers are directly involved in dairying.
  • Reduces Import Bill: Operation Flood (also called as White Revolution) converted India from a milk importer to the world’s largest producer.
    • The program launched in 1970 and adopted a multi-pronged approach. This included tax incentives, food quality standards, subsidies on inputs, infrastructure provisions such as cold chain and electrification. 
    • All this helped in reducing import bills and made India an exporter. The country exported dairy products worth $187 Million in 2019-20.  
  • Women Empowerment: Female population comprises around 69% of the sector’s workforce. They are dependent on the sector for their livelihood. Therefore, the dairy sector’s development automatically augments women’s empowerment. 
  • Boosting other sectors: The dairy sector provides cow dung which is used as an organic manure for the agricultural sector. Further, the sector provides raw materials to manufacture processed foods. 
    • For instance, the whey protein powder is an extract from the watery portion of milk that separates from the curds during the cheese-making process.

Making India milk exporting nation

  • Indigenous cows produce 3.01kgs of milk per cow per day, while the yield of exotic crossbred cows is 7.95kgs.
  • Crossbreeding has taken off in a big way because of the advancements in reproductive technologies like In vitro fertilization (IVF), embryo transfer process, and artificial insemination.
  • Out of these processes, IVF and artificial insemination have proven to be the most popular and effective methods.
  • The NAIP (Nationwide Artificial Insemination Programme) Phase-I was launched in September 2019.
  • Every animal in the programme was assigned a 12-digit unique identification number under the Pashu Aadhar scheme.
  • NAIP Phase-II was initiated on 1 August 2020 with an allocation of ₹1,090 crore in 604 districts covering 50,000 animals per district and is on track to be completed by the 31 May 2021.
  • Under the programme, 9.06 crore artificial inseminations will be performed and is expected to lead to the birth of 1.5 crore high yielding female calves.
  • Consequently, 18 million tonnes of additional milk will be produced as average productivity will be enhanced from 1,861kg per animal per year to 3,000kg per animal per year.
  • Artificial insemination (AI) technology has been the most used method in India, but its success hinges upon accuracy in heat detection and timely insemination.
  • And this is where In Vitro Fertilization (IVF) technology will prove to be more

Initiatives Related to the Dairy sector:

  • National Action Plan on Dairy Development 2022: It seeks to increase milk production and double the income of dairy farmers.
  • National Animal Disease Control Programme & National Artificial Insemination Programme: It was launched to control and eradicate the Foot & Mouth Disease (FMD) and Brucellosis amongst the livestock in the country,
  • Pashu-Aadhar: It is a unique ID on a digital platform for traceability for the animals.
  • Rashtriya Gokul Mission: It was launched in 2019 for setting up of 21 Gokul Grams as Integrated Cattle Development Centres.

Operation Flood (White revolution):

  • Phase I (1970-1980): It was financed by the skimmed milk powder and butter oil gifted by the European Union through the World Food Programme. In this phase, operation flood linked 18 of India’s premier milk sheds with consumers in India’s major metropolitan cities namely Delhi, Mumbai, Kolkata, and Chennai, and established mother dairies in four metros.
  • Phase II (1981-1985): In this phase, milk sheds increased from 18 to 136. Also, around 290 urban markets expanded the outlets for milk. And by the end of 1985, a self-sustaining system of 43,000 village cooperatives with 4.25 million milk producers had become a reality. The production of domestic milk powder also increased from 22,000 tons to 140,000 tons by 1989.

Note: Operation Flood programme was jointly sponsored by the European Economic Community, the World Bank, and India’s National Dairy Development Board.

  • Phase III (1985-1996): In this phase, dairy cooperatives expanded and strengthened the infrastructure to increase the volumes of milk in the market. This phase consolidated India’s dairy cooperative movement by adding 30,000 new dairy cooperatives to the 42,000 existing societies that were organized during phase II. Milksheds increased to 173 in 1988-89 with women members and Women’s Dairy Cooperative Societies also increased significantly.

In 1995, the Women’s Dairy Cooperative Leadership Programme (WDCLP) was launched as a pilot programme to strengthen the dairy cooperative movement by increasing the participation of women as active members and as leaders in the governance of cooperative societies, unions, and federations.

This phase also emphasized research and development in animal health and animal nutrition. The productivity of milch animals also increased due to innovations like a vaccine for Theileriosis, bypassing protein feed, and urea-molasses mineral blocks.

  • Objectives:
    • Increase milk production (“a flood of milk”).
    • Increase rural incomes.
    • Reasonable prices for consumers.
  • Significance:
    • It helped dairy farmers direct their own development, placing control of the resources they create in their own hands.
    • It has helped India become the largest producer of milk in the world in 2016-17.
      • Currently, India is the world’s largest milk producer, with 22% of global production.

Source: The Hindu

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