In August this year, Simon Long, editor-at-large, The Economist magazine, visited a gaushala in Uttar Pradesh. It was to get a feel of the country’s dairy sector at a time America alleged that milk and crude oil, or the restrictions on the imports of the former from the US, and higher imports of the latter from Russia, had escalated the US-India trade war. “The experience reinforced my appreciation of how special that relationship (dairy and people) is, corrected some misconceptions, and, perhaps oddly, illuminated why India finds it so hard to strike trade deals with other countries,” he wrote.
One of the “misconceptions” that was “corrected” was that gaushalas, and similar shelters were only for the geriatric, lame, or unproductive cows. But as Long observed, the shelter he went to “already has 700 cows, mostly rescued from wandering the roads, and now well-fed and looked after, and entitled to a government subsidy of 50 rupees (about $0.57) each a day.” This gave him, as to the readers, an insight into why India was reluctant to, even adamant not to, open the dairy sector for imports from the US.
No wonder, while the commerce and industry minister Piyush Goyal announced that “you will hear good news” on the bilateral trade deal with the US, he laced with a caveat that there will be protection of the interests of Indian farmers and fishermen. In effect, as many ministers and the prime minister have reiterated, India will not allow American moos to replace the Indian boos. Free trade is okay, and bilateral trade with the US is crucial, but this is not about economics but politics, elections, and religious sentiments and practices.
However, India will need to make some concessions, both on the farm and dairy front. Already, the farmers are up in arms against potential maize imports from the US, ostensibly for the ethanol industry, and ethanol blending. One will not be surprised if select, maybe niche, segments in dairy too are opened. Let us examine the likely scenarios in the various sub-categories, including milk. More importantly, how these can impact the dairy sector. Most experts contend that milk imports will be a big No.
A recent study by the Reserve Bank of India (RBI) found that the domestic milk prices are likely to go down by 15 per cent, if milk imports are allowed. The potential loss to the dairy farmers may be more than Rs 1,00,000 crore, as milk imports may increase by 25 million tonnes a year. As the central bank argued, the benefits will shift from the Indian producers to the local consumers, who will gain both on the price front, and the supply one.
This is how the RBI crunched the numbers. The impact on prices, due to higher supply, if imports are allowed at low import duties, may vary between 15 per cent and 25 per cent. On a more conservative assumption of 15 per cent, this will translate into revenue loss of Rs 1,80,000 crore for the dairy farmers. If the farmers’ share in prices is taken to be 60 per cent, with the remaining accruing to middlemen, manufacturers, wholesalers, and retailers, the loss figure comes to just above Rs 1,00,000 crore. Since milk production, like any other product, requires costs related to feed, fuel transport, and unpaid family labour, the gross value-added loss can be approximated to 50 per cent of the above figure, or Rs 50,000 crore. Although the per capita number may not seem much, there will be a huge impact in the largest milk-producing states such as Uttar Pradesh, Rajasthan, and Madhya Pradesh, where politics, and electoral equations are crucial for the ruling regime. No Government will give up on its core supporters, and voters.
There are media reports that suggest that up to 70 per cent of cattle in the US are fed with animal-derived feed supplements like blood-meal and tallow. In India, where cows are worshipped and revered, the consumption of such feed is non-negotiable. The policy-makers insist on strict certification norms to establish that the imported dairy products come from cows that are not fed animal-based feed. On top of this, the import tariffs range between 30 per cent and 60 per cent for the different dairy products.
This brings us to the products that are more likely to be imported. At present, lactose and albumins, including whey protein, are allowed to meet domestic requirements. The US is the second-largest exporter of whey protein to India, after Vietnam, which is the global leader. Imports from the Netherlands are substantial. America is the third-largest producer of lactose in the world, after China and the European Union. The former is the third-largest lactose exporter to India. Hence, imports of these products will go up.
One should not forget that India’s dairy exports to America are equally important. About 30 per cent of the exports went to the US in 2023, and mainly comprised milk products such as ghee and butter, ghee, among others. India has emerged as the ‘superpower’ in global milk production after the “white revolution” of 1970. Several thousands of cooperatives were established, which helped to support farmers’ incomes with logistics and distribution. It contributes nearly a quarter of the world’s supply, with dairy being the largest agricultural product, contributing five per cent to the economy, and directly employing more than eight crore farmers.
With the momentum of the White Revolution 2.0, which was launched in 2024, dairy practices are being modernised. This is why the dairy farmers are peeved, even angry. Farmer leader Rajan Kshirsagar of the Communist Party of India (CPI)-affiliated All-India Kisan Sabha (AIKS) alleged that the farmers’ interests are invariably sacrificed at the altar of the bilateral trade deals. “India is close to agreeing to import considerable amounts of milk products like milk powder and milk-based heavy proteins from the US,” he claimed.
“We strongly condemn this attempt at punishing farmers in exchange for loosening H1B visa rules,” added the AIKS president. Balbir Singh Rajewal, who heads one of the factions of the Bharatiya Kisan Union, explained, “Importing milk powder and other agri-products from the US will destroy the farmers of Punjab.” He warned that there will be a “massive stir” if New Delhi agrees to such a deal. Thus, for every moo reaching the Indian shores from the US farmlands, there is a louder boo from the dairy farmers in India. The problem is that after the massive victory in the Bihar assembly, the ruling BJP-led coalition is eyeing similar wins in the states of West Bengal, and Uttar Pradesh. Hence, it is unlikely to upset the political cart through a bilateral trade deal. The agreement between India and the US will be well-calibrated, and thought-through.
(The author has more than three decades of experience across print, TV, and digital media); views are personal