Time to invest in buffer stocking
R S SODHI, managing director of India’s largest dairy brand Amul, says farmers’ income can only be doubled by providing for buffer stocking and market linkages. In an interview to Sahil Makkar, Sodhi says India must protect its farmers by not signing free trade agreements.
How can farmers double their income in the current situation?
Farmer can double their income from where they derive their present income. Average farmer income in India is around ~6,500 per month as per National Sample Survey Office. Of the ~6,500, the farmer is earning 48 per cent income by cultivating mainly wheat and paddy. So it is time to shift the farmers to horticulture, and encourage them to grow oilseeds and pulses. The government should come out with buffer stocking and provide market linkages to offset price volatility. Instead of providing minimum support price (MSP) or incentives, the government should provide buffer stocking and export subsidies for milk. It would cost less than one tenth of what is being paid as MSP.
Are you suggesting paying MSP is a short-sighted step?
The state or the Centre will pay the MSP from the agriculture budget, which means they will have less money for development and creating infrastructure. This is not a sustainable option in the long run. The government is under pressure from farmers, who want immediate relief. Ultimately, the government has to gradually reduce the MSP and bring it to other market-led forces. The MSP is also distorting the market and competition. For instance, the Karnataka government is paying ~5 subsidy on per litre milk or around ~50 per kg milk powder (10 litre milk is required to make one kg milk powder). So, if the cost of powder in the country is ~200, then it is ~150 in Karnataka. This has forced the competitors across the country to sell it at ~150. We have calculated that ~10-12 billion subsidy provided by the Karnataka government is resulting in a loss of ~300 billion per month for milk producers in the organised sector in the country. The farmers’ income can be doubled through animal husbandry and buffer stocking.
Is buffer stock happening? Buffer stocking is not taking place because of fall in prices. Buffalo milk prices in Delhi have reduced to ~32 from ~42 in April. This is mainly because milk powder prices have fallen internationally. Consumption in India is increasing but not production in the absence of adequate prices. It is expected that next year, consumption would be more and production less. Consequently, the government will allow free imports, which would put farmers at further loss like in the cases of pulses.
Are you suggesting that government should impose duties on dairy and agri-products?
If you want to double farm income, then you have to protect farmers from cheap imports from dairy-rich countries by not signing free trade agreements (FTA). The likes of Australia, New Zealand and Canada want to include dairy items in chapter four of the FTA. This will harm the Indian farmer and we are opposing it tooth and nail.
Isn’t that against the spirit of free trade and leading to protectionism?
Most developed countries have already protected their agriculture. We can’t supply a single drop of milk to Europe. Canada imposes over 200 per cent duty, whereas in the rest of the world the duty ranges anywhere from 60 to 70 per cent. Our duties are lower. Suppliers in other countries are projecting (the myth) that milk is in short supply in India. But this is a myth. There are around 30-35 milk brands in any market in the country. World over, the dairy industry has been growing at 1 per cent Compound Annual Growth Rate (CAGR) for the past 20 years whereas India’s growth is anywhere between 4 per cent and 5 per cent. India is a fasting growing market in milk production. This is a myth that if we don’t produce enough milk, it would destroy our markets, as happened in the case of edible oil and lately pulses. In the mid-1990s, we were self- sufficient in edible oil and were barely importing 10 per cent. Now our import is around 70 per cent. Indian farmers stopped producing edible oils after the government allowed cheap import from Indonesia and Malaysia. In the last eight months, the government has gradually increased import duties, which has resulted in increase in price of domestic edible seeds. Farmers are now getting almost double for their soya produce.
Is Patanjali emerging as a competitor to Amul in any way?
In the dairy market, the competition is measured in terms of milk production and not in the commodity market. Patanjali is not our competitor. They are present only in a small segment of ghee (clarified butter) and that too cow ghee. Last year, they were very aggressive, but our sales have also gone up. We registered an increase of about 35 per cent last year and this year again we have registered a 30 per cent increase in sales for ghee. The demand for ghee overall increased because they (Patanjali) invested a lot in dispelling the myth around consumption of ghee. They entered into this market when the commodity prices were at the lowest but let’s see how they bear the cost in the future.
What are the current challenges in the dairy industry?
The biggest challenge is to bring the next generation into dairy businesses. This can happen if there is a price assurance and reduction of cost through better feeding and breeding. Secondly, the government has to provide protection to Indian farm sector from FTA. For instance, Goods and Service Tax on ghee is 12 per cent whereas it is only 5 per cent on imported edible oils.
There are around 30-35 milk brands in any market in the country. World over, the dairy industry has been growing at 1 per cent Compound Annual Growth Rate (CAGR) for the past 20 years whereas India’s growth is anywhere between 4 per cent and 5 per cent. This is a myth that if we don’t produce enough milk, it would destroy our markets.