The milky way to farm incomes

Muhammad Ashraf

The air is abuzz with concerns at dairy products’ imports ostensibly hurting the local dairy
sector. The farmers protested by spilling milk on the Constitution Avenue during the budget
session and won a 25% tariff protection, in addition to the existing 20% customs duty, on
import of milk and whey powder which are consumed as infant food and used as raw material
by confectionary and milk processing industries. It is presumed that the tariff protection
would shield the dairy industry from cheaper imports and support the farm-gate prices of
milk.
The increase in protection to the dairy sector at par with the other leading milk producing
countries might be necessary but it is uncertain if it would be sufficient to ensure farm
incomes. It’s prudent to identify the target before pulling the trigger!
With annual production of 41,000 million tonnes milk equivalent (MTME), Pakistan ranks
the 4th in global milk production after India, USA and China; yet, ironically is the net
importer of milk products with 465 MTME imports and a meagre 64 MTME exports.
Pakistan’s milk economy on the consumption side contributes to nutritional dimension of
food security and on the production side provides livelihood to nearly 8.5 million households.
The value of milk produced annually (around Rs. 3 trillion) is more than the combined value
of the major food crops – wheat, rice, sugarcane and maize. The milk production has
important spin-offs for job creation – each 10-20 litres of milk marketed per day, according to
FAO, creates one additional off-farm job in developing countries.
The dairy farm incomes can be boosted in three possible ways – increasing yield, reducing
input costs, or enhancing prices. So far, the policy advocacy on behalf of the farmers is
focused on boosting milk prices rather than productivity enhancement or cost-effective
production.
The farm-gate price of Milk in Pakistan is by no means low in global comparison. While
FAO Dairy Price Index shows 42% decline in the world dairy prices during the last two
years, the price of milk in Pakistan has increased by 6%. Pakistan’s ex-farm milk price of 60-
70 US$ cents per kg is higher than almost all other top milk producing countries – New
Zealand 26 cents, Germany 27 cents, Brazil 31 cents, France 31 cents, Russia 34 cents, USA
38 cents, India 45 cents and China 55 cents. The impact of higher prices is inevitably borne
by the consumer who currently pays nearly twice the price paid by his European counterparts.
Thus, the principle cause of suboptimal incomes of the dairy farms is something other than
price depression i.e. the endemic low productivity and an inefficient value chain.
Firstly, in a misalignment with the global lactating animal mix, milk production in Pakistan is
buffalo-dominated rather than cow driven. The share of buffaloes and cows in annual milk
production in Pakistan is 62% and 34% compared with global composition of 13% and 83%
respectively.
Secondly, the milk productivity of dairy animals in Pakistan is dismally low by global norms
resulting in high per unit cost of production and low farm profitability. The average yield of
lactating animals in Pakistan, mostly pure and non-descript breeds, is 6 to 8 times lower than
the developed world. According to FAO statistics, the 4 million German cows produce
around 3 times more milk than 10 million Pakistani dairy cows. There is very little research
in development of cross-breeds of high-yielding exotic animals with indigenous breeds,
acclimated with local conditions.
Thirdly, highly fragmented milk production base diminishes farm profitability. The average
holding per household in Pakistan is less than 3 animals. Around 80% of the milk is produced
in the rural, 15% in peri-urban and 5% in urban areas. The fragmented production in rural
areas poses huge logistical issues for delivery of extension services, milk collection and
marketing. There is recently a trend in corporate farming but its contribution in total
production is too small to make any significant impact on the sector.
Fourthly, milk is one of the least commercialized products in the agriculture sector. More
than 95% of the produce is consumed unprocessed through informal marketing chains – no
quality checks, no standardization and no value addition. Being a highly perishable product
with only four hours’ shelf life at room temperature, the non-entry of milk in the formal
processing channel causes an inexcusable 20% wastage of produce.
To conclude, the cure to the enervation of dairy sector lies in a comprehensive remedy
instead of price palliative – increased productivity through development of high yielding
breeds, economies of scale through defragmentation of small farms into cooperatives,
enhanced processing of milk through development of small-scale processing industry, and
reduction in wastage through improved produce management along the value chain.
The non-competitiveness of milk production on the one hand costs dearly to the domestic
consumer and on the other hand devitalizes the sector to fend for itself in a highly
competitive world. The trend in farm-gate milk prices shows that the dairy imports are not
driving down the farm-gate milk prices but merely bridging the supply-demand gap. Little
use of spilling the milk on the roads and crying over it.

The author is Joint Secretary (Exim) Ministry of Commerce