US-India trade deal, a threat to dairy
sector (The Hindu)
Mains Paper 2: International Relations
Prelims level: US-India
Mains level: Significance of the trade deal between US-India
The upcoming visit of US President Donald Trump to India may see the
contours of the Indo-US deal being finalised in specific sectors, which
allowing for market access for US dairy products in India.
This move is likely to have significant adverse consequences on the
prospects of the fledgling Indian dairy industry.
Highlighting the importance of the dairy sector in India:
The dairy sector not only provides employment to the rural workforce,
but is also a significant contributor to the national economy.
The share of agriculture and allied sector in the gross value added (GVA)
has consistently declined from 18.2 per cent in 2014 to 17.2 per cent in
The share of livestock to GVA has increased from 4.4 per cent to 4.9 per
cent during the same period.
Within the agriculture and allied sector, among the key livestock
products, milk and milk products have the highest share, at around 67.2 per
cent in 2017.
The dairy sector plays a pivotal role in aiding the reduction of rural
poverty and inequity, in addition to ensuring the food security of millions
of rural households.
According to a report by the Agriculture Skill Council of India, while
crop production generates employment for the rural workforce for an average
of 90-120 days in a year; the dairy sector plays a major role in providing
alternative employment opportunities throughout the year.
Milk and milk products have become the largest agricultural commodity,
with their output standing at more than 20.6 per cent of the combined output
of paddy, wheat and pulses.
Thus, there is no gainsaying the importance of the dairy sector as one
of the important sectors of the Indian economy.
The underlying broad reasons behind India’s trade surplus with the US in
dairy is elucidated as follows.
A glance at the product-wise trade statistics from India reveals that
‘melted butter’ (ghee) has the largest share in exports to the US at 56 per
cent, followed by ‘processed cheese’ (21 per cent), butter (10 per cent),
‘other cheese’ (3.9 per cent), and ‘other fats’ and ‘oils derived from milk’
(3.5 per cent) in 2018-19.
India has a comparative advantage in the export of ‘melted butter’ and
‘processed cheese’ to the US because the cost of production of both these
products is cheaper in India.
The lower average final bound duties on dairy products in the US help
provide a boost to diary exports from India. According to the World Tariff
Profiles, 2019, an average final bound duty on dairy products in the US is
around 19 per cent, as against close to 64 per cent in India.
The third and most critical reason for India’s high trade surplus in
dairy vis-à-vis US is attributable to ‘cultural and religious sentiments’.
The latter implies that the Indian authorities’ mandatory certification
from the concerned US agency which states that “the source animal should not
have been fed animal-derived blood meal”, weeds out significant imports from
This mandatory certification has been stated by the Ministry of Commerce
as non-negotiable, as it carries sensitive connotations for the religious
sentiments of a majority of the Indian population.
Disadvantage to India:
If India goes ahead with the signing of the deal on allowing market
access of US dairy products in the Indian market, then the former stands to
lose out in a big manner.
In 2017, India contributed 21 per cent of the world’s milk production,
thus making it the largest milk producer in the world.
This has been made possible by the almost 73 million marginal and
landless farmers who directly work in the dairy sector and hold, on average,
two milch animals per farmer.
Indian farmers enjoy favourable terms of trade in the dairy arena, with
their share in the consumer price standing at around 60 per cent, which
happens to be the highest in the world (as per the International Farm
Comparison Network’s Dairy Report, 2018).
However, in the US, there are around 0.04 million dairy farmers holding
an average of 241 milch animals per farmer.
Though these farmers are basically large dairy farmers who benefit from
economies of scale, they only get around 43 per cent of what the consumer
pays, which is 1.4 times lower than that of India.
According to The World Dairy Situation,2019 report, milk yield per cow
in the US is the highest in the world, standing at 10,500 kg per cow as
against 1,715 kg per cow in India, which is the second-lowest in the world
A dairy farmer in the US is able to sell milk at a price 16.6 per cent
above the average world market price, as compared with the similar number
standing at 15.6 per cent in India.
It is evident from the numbers that despite lower milk yield and
dominance of small and marginal farmers in dairy activity, India is
comfortably placed to produce milk at a cheaper rate.
Thus, opening market access for the sector is likely to place these
dairy farmers in a disadvantaged position in relation to the large-scale
dairy farmers in US.
The US dairy industry claims that the proposed trade pact with India has
the potential to increase dairy exports to India up to $100 million.
As per our estimates, had the India-US trade deal in the dairy sector
already been in force, India would have run up a dairy sector trade deficit
of $85 million today, instead of the 2018-19 trade surplus of $14.71
The deal could play spoil sport in fulfilling the Prime Minister’s
clarion call of doubling our farmers income by 2022.
It will be prudent on the part of Indian authorities to take adequate
precautionary measures in proceeding ahead with the trade pact with the US
on dairy products.
Q.1) With reference to the National Deworming Day (NDD), consider the
following statements: 1. As part of this campaign, children and adolescents aged 1-19 years are
being administered Albendazole (400 mg) across government, government-aided
schools, anganwadis, private schools and other educational institutions.
2. It is implemented with an objective to reduce the prevalence of Soil
Transmitted Helminths (STH), commonly called the parasitic intestinal worms,
among all children and adolescents.
Which of the statements given above are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) None of the above
Q.1) Describe the importance of the dairy sector in India. Opening up the dairy
market to the US will place India at an economic disadvantage and hurt small
farmers, businesses in the sector. Elucidate the statement.