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2.1 The White Revolution

Milk production in India increased from 17 million tons in 1950-51 to 84.6 million tons in 2001-02 and is expected to reach 88 million tons during 2002-03 (GOI, 2003). Therefore, from being a recipient of massive material support from the World Food Program and European Community in the 1960s, India has rapidly positioned itself as the world's largest producer of milk. Milk production in India during the last five decades is shown in Figure 2.1 and Tables 2.1 and 2.2.

Milk production in the country was stagnant during the 1950s and 1960s, and annual production growth was negative in many years. The annual compound growth rate in milk production during the first decade after independence was about 1.64 percent; during the 1960s, this growth rate declined to 1.15 percent. During the late 1960s, the Government of India initiated major policy changes in the dairy sector to achieve self-sufficiency in milk production. Producing milk in rural areas through producer cooperatives and moving processed milk to urban demand centers became the cornerstone of government dairy development policy. This policy initiative gave a boost to dairy development and initiated the process of establishing the much-needed linkages between rural producers and urban consumers.

Figure 2.1 Milk production and consumption trends in India: 1950-51 to 2001-02

Source: GOI, 2003.

Table 2.1 Annual growth rate (%) of production of major livestock products in India





1950-51 to 196-61




1960-61 to 1973-74




1973-74 to 1980-81




1980-81 to 1990-91




1990-91 to 2000-01




Source: GOI, 2003.

The performance of the Indian dairy sector during the past three decades has been very impressive. Milk production grew at an average annual rate of 4.57 percent during the 1970s, 5.68 percent during the 1980s, and 4.21 percent during the 1990s. The country's milk production is expected to reach 84.6 million tons in 2001-02.

Table 2.2 Annual growth rate (%) of milk, eggs, and wool in India: 1975-76 through 2001-02, by plan






5th Five Year Plan

1975-76 to 1979-80




6th Five Year Plan

1980-81 to 1984-85




7th Five Year Plan

1985-86 to 1989-90




8th Five Year Plan

1992-93 to 1996-97




9th Five Year Plan

1997-98 to 2001-02




Source: GOI, Basic Animal Husbandry Statistics 2002, Department of Animal Husbandry and Dairying, Ministry of Agriculture.

This growth was achieved through extensive intervention by the Indian government, as well as through increased demand driven by population growth, higher incomes, and urbanization (Candler and Kumar, 1998). Until 1991, the Indian dairy industry was highly regulated and protected. Milk processing and product manufacturing were mainly restricted to small firms and cooperatives. High import duties, non-tariff barriers, restrictions on imports and exports, and stringent licensing provisions provided incentives to Indian-owned small enterprises and cooperatives to expand production in a protected market. Indian policy makers saw the development of the dairy sector as a measure to create supplementary employment and income among the small and marginal farming households and landless wage earners, as milk production takes place in millions of rural households scattered across the country.

Despite its being the largest milk producer in the world, India's per capita availability of milk is one of the lowest in the world, although it is high by developing country standards. The per capita availability of milk, which declined during the 1950s and 1960s (from 124 gm per day in 1950-51 to 121 gm in 1973-74) expanded substantially during the 1980s and 1990s and reached about 226 gm per day in 2001-02 (Figure 2.1). The per capita consumption of milk and milk products in India is among the highest in Asia. However, it is still below the world average of 285 gm per day and the minimum nutritional requirement of 280 gm per day as recommended by the Indian Council of Medical Research (ICMR).

Several factors have contributed to the increased milk production in the country. First, milk and dairy products have cultural significance in the Indian diet. A large portion of the population is lacto-vegetarian, so milk and dairy products are an important source of protein in the diet. The demand for milk and dairy products is income elastic, and growth in per capita income is expected to increase demand for milk and milk products. Empirical evidence has shown that the composition of an average Indian's food basket is gradually shifting toward value-added products, including milk and dairy products. The proportion of income spent on milk and milk products increased from 11.7 percent in rural areas and 14.7 percent in urban areas in 1970-71 to 21.6 and 16.7 percent in 1999-00, respectively (Annex Table 2.1). Other socioeconomic and demographic factors, such as urbanization and changing food habits and lifestyles, have also reinforced growth in demand for dairy products. On the supply side, technological progress in the production and processing sectors, institutional factors, and infrastructure play an equally important role. The linking of rural small producers with urban consumers through producers' cooperatives was a true institutional innovation in the Indian dairy sector.

Given its high income elasticity, the demand for milk and dairy products is expected to grow rapidly. A study conducted by Saxena (2000) using National Sample Survey (NSS) data for 1993--94 showed that income elasticity of demand for milk and milk products is higher (1.96 national level) in rural areas (ranging from 1.24 in Punjab to 2.92 in Orissa) than in urban areas (ranging from 0.99 in Punjab to 1.78 in Bihar). The northern region in general and Gujarat in the western region show low income elasticity of demand for milk and milk products. The high values of income elasticity for different states in the eastern region-varying from 2.5 to 2.9 in rural areas and from 1.5 to 1.8 in urban areas-show a very strong preference for milk and milk products with an increase in income. Further increases in per capita income and changing consumption patterns would lead to acceleration in demand for milk and other livestock products in India and thus would give a boost to this sector. Radhakrishna and Ravi (1994), Gandhi and Mani (1995), Kumar (1998), Dastagiri (2001), and others have estimated demand and income elasticity of demand for milk and milk products, and show similar trends (Table 2.3).

Delgado et al. (2001) have estimated per capita consumption of milk products in developing countries to be about one-third that of developed countries in 2020; however, in aggregate terms, 60 percent of world milk consumption will take place in developing countries, which is a major shift from the early 1990s, when the developed countries consumed 59 percent of world milk production. The projected growth rate for milk is expected to be around 4.3 percent during 1993-2020. Kumar (1998) projected demand for milk at 142.7 million tons by 2020 at 5 percent growth in GDP (182.8 million tons at 7 percent growth in GDP). The estimates given by Saxena (2000) are different than other estimates and project demand for milk to reach its peak at 85.7 million tons in 2007-08 and decline thereafter. Saxena argued that the domestic market may expand if a rise in per capita income is more in favor of lower income groups and regions, as the income elasticity of demand for such groups and regions (eastern) is much higher. The wide variations in demand estimates are mainly due to different assumptions of elasticity, population projections, and other parameters.

Table 2.3 Income/expenditure elasticity of demand and estimates of demand for milk in India



Demand for milk by 2020 (million tons)

Radhakrishna and Ravi (1992)




Gandhi and Mani (1995)




Kumar (1998)




Saxena (2000)




Delgado, et al. (2001)




Dastagiri (2001)




Notes: @:estimates based on 4% growth in GDP (126.0), 5% growth (142.7), and 7% growth (182.8); #: estimates for 2007-08.

2.1.1 Regional Patterns of Growth

There are large interregional and interstate variations in milk production as well as in per capita availability in India. About two-thirds of national milk production comes from Uttar Pradesh, Punjab, Rajasthan, Madhya Pradesh, Maharashtra, Gujarat, Andhra Pradesh, and Haryana. However, there have been some shifts in milk production shares of different states. In 2001-02, Uttar Pradesh was the largest milk producer in the country with about 16.5 million tons of milk, followed by Punjab (8.4 million tons), Rajasthan (6.3 million tons), Madhya Pradesh (6.1 million tones), Maharashtra (6 million tons), and Gujarat (5.6 million tons) (Annex Table 2.2). During 1982-83 triennium ending (TE), the top five milk-producing states were Uttar Pradesh (18.5%), Punjab (10.1%), Rajasthan (9.8%), Gujarat (6.8%), and Haryana (6.6%). During TE 2001-02, Uttar Pradesh (19.5%), Punjab (9.9%), Rajasthan (7.5%), Maharashtra (7.3%), Madhya Pradesh (7.2%), and Gujarat (6.6%) were the largest producers. The share of Andhra Pradesh, Gujarat, Karnataka, Kerala, Maharashtra, Punjab, Uttar Pradesh, and Orissa increased between 1991 and 1999-01, while the share of Bihar, Haryana, Madhya Pradesh, Rajasthan, Tamil Nadu, and West Bengal declined. The regional shares of milk production are presented in Figure 2.2. Major milk-producing regions in the country have good resource endowment and infrastructure. The eastern region is lagging behind in terms of dairy development. The government has initiated various dairy development programs, especially for the eastern and hilly regions.

There are also wide variations in per capita availability of milk in the country. The per capita availability of milk in major states and union territories is given in Annex Table 2.3. The average per capita availability is lowest in the eastern region and highest in the northern region (see Figure 2.3). The average per capita availability of milk during 2000-01 was highest in Punjab (997 gm/day), followed by Haryana (645 gm), Himachal Pradesh (354 gm), Rajasthan (300 gm), and Gujarat (296 gram). Only 10 states had higher than the national average per capita availability of milk (220 gram/day). The per capita availability is low in the eastern and northeastern states. Milk production and per capita availability in major states during TE 1998-00 are presented in Figure 2.4. The average per capita consumption of milk and dairy products is lower in rural areas than in urban areas, even though milk is produced in rural areas.

2.1.2 Policies Influencing the Dairy Sector

Agriculture, including the dairy sector, is state controlled, and state governments are primarily responsible for development of the sector. The central government supplements the efforts of the state governments through various schemes for achieving accelerated growth of the sector. Despite the importance of dairying in the Indian economy, especially for the livelihoods of resource-poor farmers and landless laborers, government policy toward this sector has suffered from the lack of a clear and strong thrust and focus. The first attempt to conceive a set of policies for livestock development in India was the Royal Commission on Agriculture (1928). We can divide the government policies into three distinct phases; pre-Operation Flood, post-Operation Flood, and post-reform period.

Figure 2.2 Share of milk production in India by state: 1980-82 and 1998-00

Source: NDDB, 2003a.

Figure 2.3 Map showing the per capita availability of milk in India by state: 2000-01

Source: NDDB, 2003b.

Figure 2.4 Total milk production and per capita availability of milk in major states in India: TE 2000-01

Source: GOI, 2003.

One of the indicators of a sector's importance is the budget allocation to that sector. The investment pattern in animal husbandry and dairying during various plan periods is given in Annex Table 2.4. The plan outlay (at current prices) of central and centrally sponsored schemes under animal husbandry and dairying has increased from Rs. 22 crore in the First Plan to Rs. 1,545.64 crore in the Ninth Plan and Rs. 2500 crore in the Tenth Plan. The outlay for dairying increased from Rs. 781 crore in the First Plan to Rs. 900 crore in the Eighth Plan and then declined in the Ninth Plan to Rs. 469.5 crore (all figures are at current prices). The allocation to animal husbandry and dairying as a percentage of total plan outlay varied from 0.98 percent during the Fourth Plan to about 0.18 percent during the Ninth Plan (Figure 2.5). However, in most cases the bulk of the budget is eaten up by wages and other administrative costs of the government departments. Although the dairy sector occupies a pivotal position and its contribution to the agricultural sector is the highest, the plan investment made so far does not appear commensurate with its contribution and future potential for growth and development.

The low productivity of Indian cattle has been the central concern of livestock policy throughout the last century. In the First Five Year Plan, the Key Village Scheme (KVS) was launched to improve breeding, feed and fodder availability, disease control, and milk production. To meet urban areas' need for milk, the government promoted state-owned dairy plants to handle milk procurement, processing, and marketing. In 1959, the government Delhi Milk Scheme (DMS) was set up to supply milk to the urban population of Delhi. This scheme adopted the method of departmental milk procurement from the milk-producing areas around Delhi by setting up its own milk collection and chilling centers. Though the collection was started from small milk vendors initially, it ultimately ended up creating big contractors who purchased milk from the small vendors and supplied it in bulk to the milk scheme. The same policies and strategies continued in the Second Five-Year Plan. In 1976, the National Commission on Agriculture concluded that the KVS could not meet its objectives because, due to a shortage of funds, it did not stress feed and fodder development and marketing of milk. The Third Plan emphasized the need to develop dual-purpose animals for milk as well as draft use; crossbreeding of nondescript indigenous cattle was introduced during this plan. The Intensive Cattle Development Programme (ICDP) was launched in areas with high milk potential.

Figure 2.5 Share of animal husbandry and dairying outlay in total plan outlay during different plan periods

Source: GOI, 1999.

The disappointing performance of the dairy sector during the 1950s and 1960s concerned policy makers, and the Government of India undertook a far-reaching policy initiative. Dairy development through producers' cooperatives and milk production based on milk sheds in the rural areas, modeled on the successful experience of dairy cooperatives in Gujarat, became the cornerstone of the new dairy sector policy. This policy initiative turned the Indian dairy sector around and led to all-around growth with several unarticulated spread effects.

The Government of India launched a massive dairy development program popularly known as Operation Flood (OF) from 1971 to 1996. The program was initially started with the help of the World Food Program (WFP) and later continued with dairy commodity assistance from the European Economic Community (EEC) and a soft loan/credit from the World Bank. Under this program, rural producers were organized into cooperatives so they would have an assured market, remunerative prices, and inputs and services for milk production enhancement, such as better feed and fodder, breed improvement through artificial insemination, and disease control measures. The program was unique in its approach inasmuch as the gift dairy commodities received by India under the program were not consumed by free distribution but were used to manufacture liquid milk, and funds thus generated were reinvested in rural areas in milk production enhancement activities. This coordinated and innovative effort has greatly increased milk production and ushered in a "White Revolution," making India the world's largest milk producer.

The program was implemented in three phases: OF-I (1970-1981), OF-II (1981-85) and OF-III 1987-96). Operation Flood remained the pivot of government policy in the field of dairy development in India, and the number of city milk schemes and milk colonies begun in the 1950s and 1960s declined as the regional and national milk grids started operating under OF. In metro areas, government milk schemes coexisted with the Mother Dairies run under the control of the National Dairy Development Board (NDDB); however, the former kept selling milk at subsidized rates for long time for political reasons, and Mother Dairies introduced aggressive, modern milk marketing and distribution systems.

An indicator of the success of Operation Flood is the amount of milk procured and supplied to consumers. Average milk procurement increased from 2.56 million kg per day during Phase I to 11 million kg per day during Phase III. However, there are variations in the proportion of milk procured to total milk production across states. The striking pattern that emerges is the predominance of cooperatives in Gujarat and Maharashtra. Between Phase I and III, average liquid milk marketing increased from 27.8 lakh liters per day to about 100 lakh liters per day.

In 1989, the Government of India launched a Technology Mission on Dairy Development (TMDD) to coordinate the input programs for the dairy sector, which ended in March 1999. An Integrated Dairy Development Programme (IDDP) in non-Operation Flood, hilly, and backward areas was launched as a Centrally Sponsored Plan Scheme during the Eighth Plan and continued during the Ninth and Tenth Plans.

To promote domestic production, India adopted an import-substitution strategy and protected the sector from external markets through means such as quantitative restrictions on imports and exports and canalization (restricting imports and exports through government or government designated agencies). Competition within the organized sector was regulated through licensing provisions, which prohibited new entrants into the milk-processing sector. Milk powder and butter oil were available in the international market at lower prices, which made reconstitution of milk from these products cheaper than collecting and selling fresh milk. It was therefore necessary to restrict the availability of these cheap imports to encourage the indigenous production.

The third phase of Indian dairy policy started in the early 1990s, when the Government of India introduced major trade policy reforms that favored increasing privatization and liberalization of the economy. The dairy industry was delicensed in 1991 with a view to encouraging private sector participation and investment in the sector. However, in response to sociopolitical pressures, the government introduced the Milk and Milk Products Order (MMPO) in 1992 under the Essential Commodities Act of 1955 to regulate milk and dairy product production. The order required permission from state/central registration authorities to set up units handling more than 10,000 liters of milk per day or milk solids up to 500 tons per annum (TPA), depending on the capacity of the plant. The order included sanitary and hygienic regulations to ensure product quality. The status of registrations granted under the MMPO as of March 31, 2002, is given in Annex Table 2.5.

However, concerns were raised about these government controls and licensing requirements for restricting large Indian and multinational players from making significant investments in this sector. The government has amended the MMPO from time to time; the major amendment was made in March 2002, when restrictions on setting up milk processing and milk product manufacturing plants were removed and the concept of milkshed was also abolished. This amendment is expected to facilitate the entry of large companies, which would definitely increase competition in the domestic markets.

The second major development in Indian dairy sector policy came when India signed the Uruguay Round Agreement on Agriculture (URAA) in 1994 and became a member of the World Trade Organization (WTO), which made India open up its dairy sector to world markets. The import and export of dairy products was delicensed and decanalized, and trade in dairy products was allowed freely, with certain inspection requirements. The first major step was taken in 1994-95, when the import of skim milk powder (SMP) and butter oil was decanalized; restrictions on the remaining products were removed in April 2002. Moreover, there was a significant reduction in the import tariffs on dairy products after trade liberalization. However, India had bound its import tariffs for dairy products at low levels in the Uruguay Round schedules.

2.1.3 Livestock Population Trends

India has one of the largest livestock populations in the world, accounting for about 57 percent of the world buffalo population and 16 percent of the cattle population (GOI, 2002). The growth pattern of the livestock population during 1951 and 1997 is given in Table 2.4. Between 1951 and 2002, the cattle population increased from 155.3 million to 175.1 million. The cattle population grew by less than 1 percent per year between 1951 and 1997, while the buffalo population almost doubled (2.24% per year) during the same period. The cattle and buffalo stocks witnessed a significant acceleration in growth during 1977 to 1982 compared to the previous five years. The rate of increase in the cattle (2.04%/year) and buffalo (2.66%/year) populations was highest between 1956 and 1961 among all the periods considered. The turning point in the composition of the draft animal population was 1977; male cattle population declined from 73.22 million to 61.14 million between 1977 and 1982, and the corresponding decline among male buffalo population was over 1.96 million (GOI, 1999). This declining trend, however, is not uniform across the states. Agriculturally advanced states such as Punjab, Haryana, Andhra Pradesh, Kerala, and Tamil Nadu witnessed a sharp decline in the male draft animal population due to farm mechanization, while the less progressive and hilly states such as Assam, Bihar, Madhya Pradesh, Orissa, and West Bengal showed increasing dependence on work animals.

Table 2.4 Growth pattern of livestock population in India: 1951-1992 (millions)























Adult female cattle






















Adult female buffalo











Total bovines











Total livestock











Annual growth rates (%)




















Adult female cattle




















Adult female buffalo










Total bovines










Total livestock










Note: *: Excludes the data for Bihar, Dadra Nagar, and Haveli.

Source: GOI, Basic Animal Husbandry Statistics 2002, Department of Animal Husbandry and Dairying, Ministry of Agriculture, Government of India.

The crossbreeding program, after a slow start during the 1960s, spread very fast, and the successive rounds of livestock census clearly established the speed with which crossbreeding spread in different parts of the country. In 1992, crossbred cattle constituted about 4.5 percent of total cattle and about 9.5 percent of total cows in the country. In states such as Punjab and Kerala, the proportion of crossbred cows is substantially higher than in other states. The proportion of crossbred cows increased while that of indigenous cows declined, indicating the increasing importance of crossbred cows over indigenous cows. The proportion of female buffaloes also increased significantly, from 30.2 percent to 36 percent between 1982 and 1992.

In the global context, the performance of the Indian dairy sector appears impressive in terms of livestock population and total milk production but extremely poor in terms of productivity. The main reasons for low yields are inadequate availability of feeds and fodder in all seasons, non-availability of timely and good animal health care and breeding services, and lack of credit. The average milk productivity per year per cow increased from 731 kg in 1989-91 to about 1,014 kg in 1999. Although average annual milk production per animal has improved substantially, it is far below the world average (2,071 kg/year) and that of countries such as Israel (8,785 kg), the United States (8,043 kg), and Denmark (6,565 kg). The available data on milk yield indicate that average productivity went up substantially in the case of cows during the 1970s and 1980s. There is an increase in the yield of buffaloes also, but it is less sharp than that of cows. A key factor accounting for the sharper increase in cow milk yield is the increasing proportion of crossbred cows.

As in milk production and availability, there are wide interstate variations in milk yields (Table 2.5). In general, buffaloes have higher yields than indigenous cows, but crossbred cows are more productive than either indigenous cows or buffaloes. The average productivity of local cows is highest in Haryana (4.11 kg/day), followed by Punjab (2.88 kg/day) and Gujarat (2.84 kg/day). For crossbred cows it is highest in Punjab (8.36 kg/day), followed by Gujarat (7.96 kg/day) and West Bengal (7.82 kg/day). The average productivity of buffaloes is highest in West Bengal (6.26 kg/day), followed by Haryana (5.64 kg/day) and Punjab (5.62 kg/day).

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