Structural Changes in the Indian Dairy Sector09 April 2013
Vitally important for the economy, India's livestock sector employs 21 million people and currently stands at a quarter of national GDP, according to this exploration of Indian Dairy Sector Progression by Anjani Kumar, P.K. Joshi and Roelof J. Jongeneel.
Overview of the Indian Dairy Sector
The structural transformation of Indian agriculture and the growing importance of livestock and dairying in the agricultural economy of India is clearly evident from Table 1. Livestock now generates a higher value of output than foodgrains.
In 2010 to 2011, livestock output was valued at Rs2 207 billion or approximately US$49.6 billion (at 2004-2005 prices) – about 22.7 percent more than the value of foodgrains. Milk, which accounts for more than twothirds of the value of livestock output has emerged as the largest agricultural commodity in the country.
And since the mid-2000s the value of milk has been larger than the combined value of rice and wheat ? the main cereals of India. These changes are mainly attributed to the changes in the food consumption pattern away from cereals towards high-value food commodities including milk and milk products. The share of milk in agriculture value of output increased from 12 percent during 1979-1981 to 19 percent in 2009-2011.
Table 1. Value of Output at Constant 2004-2005 Prices (Rs Billion)
The value of output of livestock has grown at a much faster rate of 4 percent compared to the crop sector which grew at 2.9 percent between 1980 to 2010-2011. The growth in the value of milk was 4.35 percent per annum during this period (Figure 1).
Structural Transformation in Milk Production
Structure of Milk Production India: The Role of Marginal and Smallholders
India’s dairy industry is largely traditional, local and informal. Milk production is dominated by smallholders. About 80 percent of raw milk comes from farms having only two to five cows/buffalo. Approximately 78 percent of milk producers are marginal and small farmers and they together contribute around 68 percent to total milk production, (Table 4). This trend holds true more or less across all the states.
Table 3. Trends in the Adoption of Crossbred Cattle
In some states like Bihar, Himachal Pradesh, Jammu and Kashmir, Jharkhand, Orissa, Tamil Nadu, Uttarakhand and West Bengal, marginal and small farmers constitute about 90 percent or more of the total milk producing households. And they contribute more than 85 percent to the total milk production in these states.
These small farmers traditionally do not have access to organized markets due to the lack of an effective system to procure milk produced in the rural areas. A series of efforts have been made to promote organized milk marketing in the country and several policy initiatives have been taken to develop formal milk marketing and processing institutions in the country.
Indian milch cows produce low amounts of milk. The productivity of cattle in terms of milk yield is about half of the global average. The milk yield of crossbred cattle, buffalo and nondescript cattle at the national level was 6.9 kg/day, 4.6 kg/day and 2.1 kg/day respectively. The productivity of milk animals in 2009-2010 (cattle and buffalo) was highest in Punjab (8.9 kg/day), followed by Kerala (7.6 kg/day) and Haryana (6.5 kg/day) and lowest in Assam (1.3 kg/day) (Table 6). However, productivity has increased over time as shown in Table 6.
Table 6. Productivity of Animals in-milk Across States
Source: Computed from BAHS (various issues).
Contribution of Population and Productivity to Milk Growth
Another dimension of looking at sources of growth is to assess the contribution of population and productivity to incremental milk production. Between 1992 and 2010, 56 percent of the incremental production was contributed by increase in milk productivity and 43 percent by the population of milch animals.
The remaining 1 percent was contributed by the effect of interaction between the increase in population and in productivity of milch animals. During the period 1992-2009, crossbred cows accounted for 34 percent of the additional milk production and 14 percent of this came from improvement in their milk productivity (Figures 2 and 3).
On the other hand, indigenous cows contributed 11 percent to the increase in milk production and about 80 percent of this came from enhanced milk productivity. Buffalo accounted for 55 percent of the increased milk production and improvement in yield contributed to 41 percent of this increase. These results indicate that the growth in milk production has come largely from replacement of low-yielding indigenous cows with crossbred cattle and buffalo.
Figure 2. Contribution of Different Species to Increase in Milk Production
The contribution of productivity to output growth is a combined effect of technology and improvements in feed, health care and other management practices. In the case of crossbred/improved animals, milk productivity is embodied as a general trait and therefore the contribution of crossbred/improved animals to the increase of milk production may be attributed to the effect of technological change.
The potential of crossbred cattle and graded buffalo is yet to be exploited and efforts should be made to bridge the yield gap. Better management of higher milk-yielding breeds of indigenous cows such as Sabherwal, Gir and Tharparkar can also further increase the rate of growth in milk production. The improved indigenous breeds have a yield potential of around 2 000 kg per annum.
Figure 3. Sources of Growth in Milk Production
India’s production of milk has strongly increased over time with significant technical, policy and institutional support. This led to significant changes in the Indian dairy sector. In fact, the Indian dairy sector has undergone significant structural changes over time and some interesting patterns are unfolding along the milk value chain.
Noteworthy among them are the changes in production of milk, composition of the livestock population (increase in the crossbred population), marketing of liquid milk pioneered by cooperative networks and increase in participation of private players in the milk-processing sector.
Despite breakthroughs in milk production, increase in crossbreeds and high-yielding livestock species, productivity of milch animals is quite low in India. This low productivity could be the result of many factors which include: poor genetic make-up of animals, shortage of feed and fodder, inadequate animal health care coverage, inappropriate dairy development policies, lack of market integration between producers and consumers, and lack of appropriate environment.
With increase in income and urbanization, the demand for milk will increase further. The domestic demand of milk could be 209 million tonnes in 2026-2027, up from 127.3 million tonnes in 2011-2012. Supply projections indicate that with the existing growth rate of milk production during the last decade, India will be self-sufficient in milk by 2026-2027.
However, any deceleration will jeopardize the self-sufficiency status of milk production in the country. If concentrated efforts are made to accelerate the growth of milk production, India can turn out to be an important exporter of milk and milk products. India has competitive advantage in the production of milk.
Producer prices of milk are lower in India than in the leading international exporting countries. Prospects for export of milk to neighbouring, particularly SAARC, countries, most of which are deficient in meeting their requirements with domestic production, are very promising.
Achieving higher growth of the dairy sector is essential to ensure long-term inclusive agricultural growth. Productivity-led growth is the only viable option for accelerated sustainable growth of the Indian dairy sector.
The status of supporting infrastructures and their delivery is still inadequate and concerted efforts are required to bring desired improvement. The strengthening of market linkages, either through expansion of cooperatives or by facilitating contract farming arrangements, would go a long way to ensuring sustainable growth of the Indian dairy sector.
India can emerge as an important exporter of milk and milk products. For SAARC countries, inclusion of milk in the South Asian Free Trade Area may increase trade among South Asian countries. Attendant non-tariff measure would be pre-requisite for tapping the markets in developed countries.
Further ReadingYou can view the full report by clicking here.