Between one third and half of the world’s
poor population live in South Asia and many of them rely on
dairy farming for a part of their livelihood. Even though
South Asia is one of the world’s major milk producing
regions - with India having become the world leader in milk
production in 1998 - milk production remains predominantly
a smallholder business.
Low production costs ensure South Asian farmers’ global
competitiveness. This applies particularly to Pakistan and
India whereas in Bangladesh total production costs for milk
lie slightly above the world market price. In particular if
the cost of family labour on small farms is discounted (opportunity
cost of labour is very low) South Asian dairy farms are highly
competitive in comparison with those in other regions. Furthermore,
South Asian dairy farms have large productivity potentials
that have not been tapped so far and offer the opportunity
to further improve on competitiveness.
By far the major part of the milk in South Asia flows through
informal marketing channels. This is due to the poor willingness
of consumers to pay for the extra costs of formal processing
and packaging as well as the absence of formal marketing channels
in remote and poor areas. The predominance of informal marketing
need not be an obstacle to dairy sector development. Prices
offered to farmers are at times higher than in the formal
sector and informal small-scale credit provision by middlemen,
even at high interest rates, can be crucial in areas where
formal credit sources are not available. Issues of milk quality
and public health in informal channels however still need
to been systematically analysed.
Dairy farms in North America and Europe have higher production
costs than South Asian milk producers and are dependent on
export and production subsidies for competing on the global
market. Due to these regions governments’ resolution
to protect the domestic dairy sectors they might become serious
competitors when selling excess produce on the world market.
However, as those countries have strongly reduced overproduction
since the mid-1980s and have become less disposed to selling
their excess milk supply on the world market this danger is
gradually diminishing. More real competition stems from producers
in Oceania and Latin America that have very low production
costs. But even these countries are unlikely to meet the strongly
growing demand for dairy products in South Asia and South-East
Globally, milk yields per cow range from 960 to 10,000 kg
per year. These wide differences are due to differences in
production systems, genetic potentials and farm management.
Only the larger Indian farms, which are very well managed
and rely on European dairy genetics reach milk yields around
the 4,000 kg mark, equal to the yields achieved in grassland-based
New Zealand farming systems.
Within South Asia, two interesting trends and opportunities
for development appear to exist: firstly, lactating animals
in small farms in Pakistan yield around 40 percent more than
those on small farms in India and Bangladesh. And secondly,
milch animals in ‘large’ farms in Haryana, India,
reach yields that are 70 to 100 percent higher than those
on large farms in Pakistan and Bangladesh.
Returns to the Dairy Enterprise
Milk prices range from a low of 10 US$ per 100kg in Pakistan
to a high of 29 US$ per 100 kg in the USA. Within South Asia,
Bangladesh dairy farmers receive the highest prices for their
milk - over 23 US$ per 100kg - which is 1.28 times what New
Zealand farmers get. This high price seems to stem from a
high demand for milk opposed to relatively low volumes of
production and limited availability.
With some exceptions, returns from cattle sales are more
relevant for small farms than for the large ones. ‘Other
Returns’ which include milk and manure utilized on the
farm are very important for all South Asian farms, but particularly
for small dairy farms.
Cost of Milk Production
The cost of milk production determines the long-term competitiveness
of milk producers. Comparison of South Asian dairy farms with
those in other regions shows that:
- In all small farms the main cost component are the opportunity
costs of family labour.
- The Indian and Pakistani milk producers are more competitive
than those of Western Europe (Germany) and the USA. The
cost difference is more than 10 US $ per 100 kg milk.
- The small scale farmers in South Asia are more competitive
than their small scale counterparts in Poland and presumably
other EU accession countries.
- Average sized farms in South Asia have higher production
costs (by 20 to 50 percent) than New Zealand dairy farms.
- Large dairy farms in Pakistan and India have lower costs
than New Zealand farms and can be competitive milk producers
in the future on the world market provided a competitive
dairy marketing and processing chain.
- Farms in Bangladesh will have difficulties to compete
against imports from the world market and also from other
countries in South Asia such as India and Pakistan.
Taking into consideration both the fact that South Asian
dairy production, though still mostly small-scale, is highly
competitive and that regional demand for dairy products is
expected to continue expanding there is a strong rationale
for the South Asian countries to promote small-scale dairy
production and if need be protect their dairy markets from
unfair and harmful competition.
To further enhance productivity of milk production and make
South Asian dairy farmers fit to meet international competition,
farmer organisation has to be strengthened to ensure that
their interests are better represented on a national scale.
Additionally, considerable gains in productivity are to be
reaped through improved dairy management.
As a final measures the South Asian countries’ governments
should resort to applying the special safeguard provision
as permitted by the WTO to protect their dairy markets against
subsidised imports from the European Union or North America
and lobby for its general applicability by all developing
countries, whilst developed countries should be encouraged
to phase out export subsidies.