Subsidy for Dairy Farmers : Boon or Bane?

India has been making its mark on the world map with consistent growth in milk production and becoming a dairy to world. In an era of declining farm income and a drop in employment opportunities, dairying and animal husbandry has emerged as an important sub-sector of India's agriculture with co-operatives bringing an edge with supply chain efficiency. It is one of the most remunerative alternatives to the conventional agricultural livelihood which provides regular income and employment to the households, while also working as an instrument of women empowerment. Increasing milk production is an important pathway to alleviate poverty and enable inclusive growth in India providing employment to more than 10 crore families in India

Dairying and Animal Husbandry contributes to around 5.2% of India's national GDP and 30% to India's agricultural GDP. Milk production in India is growing at a rate of 4.6% in the last decade, far above the growth of the agriculture sector during the same period. Till now, the growth in the dairy sector has been demandbased and self-driven. Despite low budgetary allocations in the sector, its growth rate has been very consistent.

Now that India is aiming to maintain the top spot among world's biggest dairy nations, the goal for the next 25 years is to attain a milk production level of 628 MMT and contribute approximately 45% of global milk production. To meet the accelerating demand of milk and milk products in the coming years, various systemic changes must come into force immediately. Many state governments have executed policy interventions for incentivizing dairy farmers by way of providing subsidies based on the quantity of milk they pour for the cooperative societies. Subsidies as a means of incentive for the dairy farmers was a welcome initiative at a time when this sector was at a nascent stage and the market was not as evolved. However, with India competing for dairy supremacy, the pertinence of subsidies in the dairy sector must be questioned.

This practice was first implemented by the Karnataka state government in 2008-09. Karnataka had recognized the potential of dairying and therefore has always remained at the forefront of dairy development initiatives. Milk production has increased steadily in the state and with it the opportunities of regular employment and stable income for the rural producers. However, the provision of subsidy and regulation on upward revision of retail prices in the state is causing farmer distress. At present, the milk producers of Karnataka associated with co-operatives receive approximately Rs. 32-33/- per litre of cow milk (Rs. 28/- per litre from the co-operative and Rs. 5/- per litre as subsidy from the government). Due to the regulations in place, the price of the final product in Karnataka is stagnated at Rs. 38/-per litre. Whereas the farmers in non-subsidized states like Gujarat receive approximately Rs. 37-40/- per litre for cow milk and the consumers on the other hand pay Rs. 52/- per litre for the final product. The urban consumer in a Bangalore is paying much less for his/her milk products as compared to an urban consumer in say Mumbai, Delhi, or Ahmedabad to name a few. Clearly, the urban consumer of Karnataka is deriving benefits of approximately Rs. 12 per litre from the subsidy provided to the farmers on milk. Therefore, it can be said that in a way that the rural farmers are subsidizing the urban consumers.

The point I want to drive home with this comparison is that urban consumer has evolved over the years and so has his/her purchasing power. When the consumer prices are not driven by market forces, the consumer with a higher purchasing capability is benefitted, but the marginal farmer who is already crippled with rising input costs is further burdened with low remunerative prices.

Milk producers in the country have been in midst of a crisis due to a steep hike in input costs, especially feed and fodder. The producer unions that are bound by regulatory retail pricing are under immense pressure to cut the procurement cost at the expense of farmers in the absence of a consumer price hike.

Consumer price hikes that are commensurate with the increasing income of the urban consumers aid the cooperative mechanism to provide remunerative returns to the producers, who in turn will be able to increase their contribution to the growth of dairying in India.

Many other states like Rajasthan, Jharkhand, Goa, Telangana, West Bengal, Sikkim and Haryana receive subsidies from their respective State governments due to which the urban consumer is benefitted at the cost of rural producers. No other sector apart from the food industry draws such media hype on slightest price hikes. Inflation in the food industry is never scrutinized from the point of view of the producers who often suffer due to an "urban consumer centric" pricing of products. Excessive involvement of the government hinders competitive pricing of final products, which ultimately benefits the urban consumer and not the rural producer.

India is self-sufficient in terms of its milk production and consumption through many years of long and concerted nation-wide efforts, one that began with Operation Flood program in the 1970s. It assured a ready market for any quantity of milk supplied right in the village, linking the marketable surplus simultaneously with the consumption centers in urban areas. The brain behind Operation Flood, Dr. Verghese Kurien firmly believed that subsidies are like crutches. True sustainability in milk business will come with systemic improvements such as enhanced infrastructural investment, not only for dairy plants but also for milk procurement system, cattle feed plants, animal genetics and breeding, improved veterinary health care services, availability of affordable equipment like milking machine and chaff cutter to farmers etc. The long-term solution for enhancing dairy production is in investing in permanent advancement of facilities today, to reap multifold benefits in future.

It is high time that a flat subsidy policy is questioned as it is extremely crucial for managing prices, food inflation and also pivotal for the benefit of the rural producer.