In 2001 India became the world leader
in milk production with a production volume of 84 million
tons. India has about three times as many dairy animals as
the USA, which produces around 75 million tons, over 80 percent
being kept in herds of 2 to 8 animals. Annual milk yield per
dairy animal in India is about one tenth of that achieved
in the USA and about one fifth of the yield of a grass-fed
New Zealand dairy cow.
More than 40% of Indian farming households, about two thirds
of which own less than 1 ha of land, are engaged in milk production
as this is a livestock enterprise in which they can engage
with relative ease to improve their livelihoods. Regular milk
sales allow them to move from subsistence to earning a market-based
Rapid structural changes are occurring globally in the livestock
industry with a real danger that the poorer livestock producers
will be crowded out and left behind. As more than 40 million
households in India at least partially depend on milk production,
developments in the dairy sector will have important repercussions
on their livelihoods and on rural poverty levels.
The state of Haryana, one of the major milk producing states
in India, was chosen to assess possible developments in the
Indian dairy sector and to broadly identify areas of interventions
that favour small-scale dairy producers. Impacts of changes
in milk prices, farm management and other market factors that
affect small-scale milk production systems, the whole farm
and related household income, were examined using a methodology
developed by the International Farm Comparison Network (IFCN).
Four types of dairy farms were identified, defined by (a)
location of the farm in relation to urban centres - urban/peri-urban
farms vs rural farms - and (b) land ownership - land owning
vs landless farms. Income level and composition, labour use,
production costs and hypothetical scenarios involving changes
in factors affecting milk production were analysed and the
results validated in discussions with local experts and farmers.
Household and Farm Comparison
All four farm types have a more or less diverse income structure,
income sources being the sale of milk, cash crops in the case
of land ownership, and off-farm employment. Annual household
incomes ranged from 700 US$ for a rural landless farm (less
than 50 US$ cents per person per day) to 8,200 US$ for a larger
peri-urban farm. Especially for rural landless farms the main
source of income is off-farm employment.
The annual income from dairy farming ranged from 200 US$
to 8,200 US$ per year. For the rural landless farm, the net
cash farm income, less than 50 US$ a year, just covered the
farm cash costs and contributes less than 10 percent to the
household income. This was due mainly to the low share of
milk sold and the interest rates paid for a loan from the
local milkman. However, the non-cash benefits from the dairy
obtained in the form of milk for home consumption and manure
used as fuel are significant and have a market value equivalent
to around one quarter of the total household income.
Costs of Milk Production
Land-owning farms that have the possibility to grow crops
and forage are able to produce milk at around 15 US$/100 kg.
These farms have the potential to compete with non-subsidised
imports of dairy products and also to produce milk for export,
provided international quality standards can be achieved and
the dairy chain being internationally competitive.
The cost of milk production of landless farms near urban
areas is 50 percent higher (an additional 8 US$/100 kg milk)
than that of the land-owning farms. This is due to higher
feed costs as a result of having to purchase all feed. However,
the high milk price obtained in urban areas (an additional
8 US$/100 kg) compensates for the additional costs. Landless
farms near urban centres typically fully cover their production
costs and should be economically viable in the long run.
The cost of milk production of rural landless farms amounts
to 25 US$/100 kg if family labour is priced at the minimum
wage rate, and is thus significantly higher than the production
cost incurred by land-owning farms. This high cost results
from the low annual milk yields, the very high labour input
per litre produced and poor breeding performance. Without
major improvements, rural landless dairy farms will, in the
longer run, have difficulties competing with the larger farm
types. However, it has to be kept in mind that the main purpose
of landless rural farms is to produce milk for home consumption
by converting practically free feedstuffs into milk, surplus
livestock, and fuel and secondly to provide the female members
of the family with an income-generating activity.
Prospects for Landless Dairy Farmers
Simulation of increased productivity, better farm financing
and improved milk marketing, as they could result from pro-poor
dairy development policies, show that landless rural dairy
farmers do have the potential to reduce the cost of milk production
to the level of the larger farms. They could thereby achieve
an income from dairying that provides higher returns to labour
than the prevailing minimum wage rate in the area and fully
cover their production costs. Thus, landless people in rural
areas theoretically have the potential to run a profitable
dairy enterprise, which generates employment for family members,
especially women, and significantly improves their living
conditions. The main risks of dairying identified by the farmers
are not having an animal in milk in any one year, the death
of a lactating animal, and having to pay for straw, which
is the main feed source. Occurrence of any of these events
can lead to a reduction of the already low household income
by 50 percent, and would probably force the family to abandon
the dairy enterprise.
In order to manage the production risks faced by rural landless
dairy farmers and to realize the potential of small-scale
dairy production as a means to reduce poverty farm productivity
has to be raised.
Raising productivity of dairy farms and mitigation of their
production risks requires the availability of improved breeding
services, targeted preventive animal health care (specifically
addressing foot-and-mouth disease and haemorrhagic septicaemia)
and better feeding strategies.
Furthermore, access to formal credit at market interest rates
would provide farmers with an alternative to having to accept
loans from the milkman and thus increase their bargaining
power in the market place.
As long as small dairy producers are not an organized and
active interest group, dairy and related sector policies will
be driven by other actors who may have conflicting interests.
Building the capacity of producers to act on their own behalf
is therefore essential for improving poor producers' welfare.