The world trade in dairy products is dominated by European Union, USA, and Oceania-Australia and New Zealand. In 2007, global export supplies of key products, in milk equivalent terms was 38.0 million tonnes, this being the lowest trade volume in many years. The prospects for 2008 are for a further decline in trade, largely due to reduced export availability in European Union and in draught-affected Oceania. The United States which has doubled its exports since 2000, is expected to increase them further in 2008, primarily in the form of skim milk powder, but also of other products including cheese, butter and concentrated solids. Last year high import demand from most markets particularly from several emerging dairy consumer nations in North Africa and South Asia pushed up the international prices. That demand now appears to have loosened in the face of high prices and prices are expected to drop by 5 per cent in 2008. Skim milk powder exports are likely to decline. The EU as well USA provide huge subsidy both for production and export of dairy products, thereby influencing the market.

India is a minor player in the world trade in dairy products despite being the highest milk producing nation; with production forecast of 106 million tonnes in 2008 (FAO Food Outlook, June 2008). Besides structural inadequacy a major reason for India’s inability to develop its potential is trade policy which has neither been consistent nor progressive to allow the dairy industry to develop exports. During 2007, fearing shortages in the domestic market the export of SMP was banned between February to October 2007, Indian dairy industry could not take advantage of high prices then prevailing in the international markets. Unfortunately there exists no mechanism to forecast availability of milk in a given year and thereby plan production and marketing of products rather than resorting to ad-hoc decisions.

The export of agricultural commodities including dairy products have traditionally been receiving export incentives. This includes Vishesh Krishi And Gram Udyog Yojana under which interest free credit is provided to the extend of 5 per cent of FOB value of exports made during the previous year, a small incentive under Focus Market scheme and neutralization of duties under DEPB. These incentives are provided to compensate for structural inadequacies.

In the wake of rising inflation, this year Government of India in April 2008, fearing rise in the prices of dairy products decided to take measures to control price rise through discouraging exports. The export incentives on dairy products were withdrawn vide Ministry of Commerce and Industry notification No. 4, 5, and 6 dated 17th April, 2008. This included the benefit of VKGUY Scheme and Focus Market Scheme as well as benefit of DEPB covering SMP, Casein and any other milk product. In addition, the import of SMP was liberalized and the import duty reduced from 15% to 5%. These measures appear to have made an impact on the availability and price of milk in the country. Abandoned quantity of milk is available throughout the country. There has been no appreciable increase in the price of milk to the consumer despite increase in the procurement price paid to the milk producers in many states both in north and south India and the increases have been absorbed by the state level Federation and the processing plants of the private entrepreneurs. Therefore, while the overall availability of milk has increased the consumer has been protected. One can safely say that the milk situation in India has been managed very satisfactorily, despite high inflation and rise in market price of most other agricultural commodities.

There exists differences in the pattern of milk production in the north and south India. In the northern states, where the milk is predominantly from buffalo, the production exhibit marked seasonality in production -- flush and lean season. The production declines during the summer months. In southern states, however, the bulk of the milk production is derived from cows and there is no marked seasonality in the production in summer and winter. This year, the onset of monsoon has been early throughout the country resulting in cooler months and greater availability of fodder and grazing area. As a result, even in north the quantity of milk available has been satisfactory and much larger compared to previous years.

The Indian Dairy Association has been reviewing the situation by holding periodic meetings with the dairy processors both from the private and cooperative sector in regard to availability of milk, milk products and their prices. IDA monitors the prices of major milk products like SMP, Ghee, Butter and Infant Food and the findings are published monthly in the ''Indian Dairyman'' -- It has been observed that while there has not been any appreciable increase in the price of milk products, the SMP price has gone down.

In a meeting held on July 16, 2008 with the dairy entrepreneurs, the position with regard to availability of milk and milk products and their export were reviewed. It was observed that better prices paid to milk producers by the cooperative unions and also by the private sector has resulted in increased milk production in all parts of the country. The milk collection in cooperative as well as in the private sector is quite high and it is expected to continue to be more than satisfactory during the period August to December 2008, when flush period would set in. It is feared that in such a situation the plants will have problem to handle the abandoned milk available during the flush season. The quantity of SMP held by various cooperative and private plants was reported to be between 59,000 to 65,000 mt. The industry has no idea as to how to dispose off the accumulated stocks, since these may not be required for reconstitution of milk for domestic consumption. The international prices of SMP are hovering around US $ 3100 per mt against US $ 5200 per mt a year ago. Appreciation of Indian Rupee has further made SMP export difficult. Private sector has made huge investment in the processing plants anticipating an export of 1,00,000 mt during 2008-09. In regard to casein, it was reported that all the casein produced in the country is exported since there is no domestic market for the casein. Looking at the growing demand for casein in the international market many casein plants have been set up in the country with a substantial investment which can be serviced only through viable export. The removal of incentives on export of milk products has put a serious limitations on these plants.

It was also reported that the onset of flush season in north India is round the corner. Unless measures are taken to encourage export of milk products it will result in inability of the processing plants to collect all the milk available in their milksheds. On account of good prices paid, the producers in most parts of the country have increased production by increasing the stock, better feeding and better management practices. The dairy sector feels that immediate measures are required to handle the situation. New infrastructure is needed for accommodating the growth which is over 4 per cent every year. Further the old stocks of SMP need to be cleared to create space for new stocks. At present there is no incentive for them to invest in infrastructure to process additional quantity to accommodate growth. There is stagnancy in cooperative sector as many federations have not taken up expansion of new processing capacity during the last many years. This may result in stagnation of the dairy sector which has been otherwise showing a satisfactory growth. The withdrawal of export incentives is having negative impact on the sector.

It would not be out of place to mention that export incentives have not been withdrawn for other food products inspite of increase in their prices much more than milk. This is to some extent discriminatory as far as the milk producers are concerned. The international price of SMP is expected to dip further making exports unremunerative unless immediate measure are taken.

In the light of what has been stated above, the Indian Dairy Association feels that unless the incentives on export of milk products are restored the dairy sector is likely to receive serious set back. IDA has accordingly submitted a Memorandum to Government of India in the Department of Animal Husbandry & Dairying to recommend to Ministry of Commerce to restore with immediate effect all incentives which were available for exports of dairy products prior to notification dated 17th April, 2008.