Report Highlights:

CY 2016 fluid milk production is projected to increase by 4.8 percent to 154 million metric tons (MMT) assuming a normal monsoon. CY 2016 NFDM exports are projected to be flat at 30,000 metric tons on expectations of high global supplies and low prices. CY 2015 NFDM export estimates are revised down to 30,000 metric tons on slow export pace.

Executive Summary:

CY 2016 fluid milk production is projected to increase by 4.8 percent to 154 million metric tons (MMT) assuming a normal monsoon. Indian milk production is constrained by a variety of factors such as genetics, a falling water table, less land due to urban sprawl, and poor farm management. With a growing, more affluent population demanding more diversified milk and dairy products, India will be challenged to meet this rising demand. CY 2016 NFDM exports are projected to be flat at 30,000 metric tons on expectations of high global supplies and low prices. CY 2015 NFDM export estimates are revised down to 30,000 metric tons on slow export pace.

Production:

CY 2016 fluid milk production is estimated to increase by 4.8 percent to 154 million metric tons (MMT) assuming a normal monsoon. CY 2016 non-fat dry milk (NFDM) production levels are projected flat at 540 MMT on high carry-in stocks resulting from low CY 2015 exports. CY 2016 combined butter and ghee (clarified butter) production is estimated to rise 3 percent to 5.2 MMT on rising domestic demand due to population growth and demographic shifts.

According to sources, only approximately 20 percent of India's total milk production is further processed or pasteurized via the organized sector, which includes government supported dairy cooperatives and licensed private sector dairies. With growing demand for fluid milk and other value-added dairy products, cooperatives and private dairy companies are expanding their distributional network and processing capacities. Most state players distribute product at the state or regional level; only a few have a wider national presence.

More than 90 percent of India's milk production is concentrated in 14 states (the top five states are Uttar Pradesh, Rajasthan, Andhra Pradesh, Gujarat, and Punjab). Water buffaloes contribute more than 56 percent of total milk production. Some farmers prefer water buffalo milk due to its higher fat content, which can earn more money (milk prices are determined by volume, fat, and solids-not-fat (SNF) content); spent water buffaloes can also be sold for slaughter, unlike cattle which are banned in most Indian states. Cross-bred cows are used in certain states such as Tamil Nadu, Maharashtra, Kerala, Karnataka, West Bengal, and Punjab.

Indian dairy production is characterized as a low input/low output system mostly constituting small and marginal farmers and landless laborers owning less than five cows or water buffaloes. These small dairy farms mainly depend on low cost agricultural byproducts and other locally available feed sources. Many Indian policymakers believe that livestock is critical to support rural livelihoods.

Increasing milk production is critical to meet growing domestic demand; however, it is constrained by genetics, animal diseases, insufficient animal feed and fodder, lack of adequate veterinary and breeding services, a declining water table, less land due to urban sprawl, and poor farm management. The National Dairy Development Board (NDDB) is implementing the National Dairy Plan (NDP) to help address some of these challenges, and in the process hopes to increase milk production to 200 to 210 MMT by fiscal year (April to March) 2021-22. Yet, these and other government efforts are primarily focused on assisting state-supported dairy cooperatives and processors, and not the private sector.

Prices

Industry sources note that dairy cooperatives set farmgate fluid milk prices; these prices generally are benchmarks for private players procuring milk in the region. Post contacts indicate that the September 2015 average farmgate price for milk ranges between INR 30 to 35 per liter ($449 to $524 per metric ton) for water buffalo milk (six percent fat and nine percent SNF), and INR 20 to 25 per liter ($300 to $374 per metric ton) for cow milk (four percent fat and eight-and-a-half percent SNF).

As feed and other input costs rise, dairy cooperatives allegedly increase farmgate fluid milk prices in order to help farmers cover total costs. From fiscal year 2009-10 to 2014-15, fodder and cotton seed oil cake prices increased at a compound annual growth rate of 16.01 and 5.36 percent while milk prices increased by 10.63 percent. Compound feed use is limited, although some believe demand is growing as farmers improve their on-farm management. Reportedly, some state governments provide financial subsidies to dairy cooperatives so that they can offer higher prices to farmers to improve profit margins.

Production Policy and Environs

The NDDB is currently implementing the first phase of the NDP via the National Dairy Plan Phase I (NDP I) from FY 2011-12 to 2018-19, which is valued at USD $315 million (more than INR 20 billion), and currently covers 18 states. NDP I is focused on increasing milk production in various areas such as improving artificial insemination conception rates, fodder development, and animal nutrition. The program also aims at enhancing village-level procurement systems such as milk weighing, testing, collection, and cooling, extension services, and dairy cooperative development.

The GOI implements various programs such as the National Program for Bovine Breeding and Dairy Development (NPBBDD) (fiscal year 2012-17), Rashtriya Gokul Mission, and National Livestock Mission. The major activities for the NPBBDD include breeding services, creating infrastructure for quality milk production, procurement, processing, and marketing, providing inputs to dairy farmers, and farm management training. The Rashtriya Gokul Mission under the NPBBDD focuses on improving the genetic potential of indigenous breeds. Each state has its own breeding policy for dairy animals, which varies depending on whether the state focuses on improving non-descript cattle or water buffaloes with high quality foreign or domestic genetics. The National Livestock Mission concentrates on pork, poultry, and small ruminants via genetic improvement, extension services, risk coverage and insurance, farm management training, and fodder development.

Other national level programs include the Rashtriya Krishi Vikas Yojana, which provides financial assistance to state governments to improve fodder development, cattle and water buffalo genetics, milk production, raw material production (e.g., hides and skins) for the leather industry, and livestock health and infrastructure. The GOI also supports state governments through an animal disease control program that provides financial assistance for immunization and improving state veterinary biological production units and diagnostic laboratories for diseases such as Foot-and-Mouth Disease, Rinderpest, Peste des Petits, and Brucellosis. The GOI administers the National Disease Reporting System (NADRS), which is a web based system that reports and monitors animal diseases across the country.

The GOI offers some programing to increase private sector dairy development. For example, the Dairy Entrepreneurship Development scheme provides subsidies of up to 25 to 33.33 percent of the total cost to establish farms, small scale processing facilities, cold storage infrastructure, or dairy marketing outlets. The scheme entitled Establishment of Agri-Clinics and Agri-Business Centres (ACABC) provides financial assistance to professionals to establish their own business advisory centers, which provide guidance and other business services to farmers.

Consumption:

CY 2016 fluid milk consumption is forecast to increase by five percent to 62.75 MMT on population growth; milk and dairy products are a major source of protein for a large segment of India's population. CY 2016 NFDM and butter consumption is forecast to increase to 530,000 MT and 5.19 MMT on population growth and demographic shifts (see the Marketing section).

Processing and Food Safety:

India's processed dairy segment has grown due to increased demand for more diversified dairy products (see Consumption and Marketing section). Sources believe that continued growth will largely depend on an enabling business environment, consistent supplies of high quality fluid milk, and an improved cold chain. According to the NDDB, the total dairy cooperative processing capacity is approximately 43 million liters per day; however, only 77 percent of total capacity is used. Total private sector processing capacity data are unavailable; however, the NDDB believes it could be as high as 73 million liters per day (actual utilization per day is unavailable).

Because a large segment of India's total milk production is produced by the unorganized sector, food safety will remain a challenge. For example, reportedly there have been cases of milk adulteration using water, urea, detergent, and fat in the supply chain. In order to address food safety issues, the GOI has enacted the program entitled Strengthening Infrastructure for Quality and Clean Milk Production under the NPBBDD. This program provides financial assistance to states to improve milk quality and food safety at the farm and village level by training farmers, install bulk milk coolers, strengthen laboratory testing capabilities, and monitor data collected from milk collection centers in order to help FSSAI create better food safety policy. The Ministry of Food Processing Industries also provides subsidies to the private sector and dairy cooperatives to build cold chain infrastructure.

Trade:

Exports

Overall dairy exports are minimal due to high domestic consumption. CY 2016 NFDM exports are projected to be flat at 30,000 metric tons due to uncompetitive export prices; high global supplies are expected to keep international prices low. CY 2015 NFDM export estimates are revised down to 30,000 metric tons on slow export pace. For CY 2015 and 2016 butter exports are forecast at 10,000 MT on export pace and expectations of steady regional demand. CY 2014 butter exports are revised to reflect customs data. India generally exports NFDM to milk-deficient countries such as Bangladesh, Pakistan, Nepal, Bhutan, the United Arab Emirates, and Afghanistan. India also exports smaller volumes of casein, butter, and other dairy products to neighboring countries.

Imports

India's dairy imports are minimal; however, there are irregular imports of milk powder and butter. India also imports small volumes of ice-cream, cheese, and other dairy products. U.S. dairy product exports are effectively prohibited under India's sanitary import protocol.

Policy:

Trade Policy

The Department of Animal Husbandry, Dairying, and Fisheries (DAHDF) regulates milk and dairy product exports to India. Imported dairy products require a sanitary import permit issued by DAHDF, and a veterinary certificate certified by an exporting country's veterinary authority.

India's Food Safety and Standards Authority of India (FSSAI) regulates dairy products under the Food Safety and Standards Regulations (FSSR), 2011. India applies tariff rate quotas (TRQ) for dairy product imports such as NFDM and butter oil; imports above the TRQ will be levied at 60 and 40 percent. GOI published a notification that increased the butter, butter oil, and ghee tariff rate from 30 to 40 percent until 31st March 2016.

India's guidelines for bovine germplasm imports (revised December 2013) are reportedly less restrictive; however, multiple approvals at the state and federal level can restrict trade significantly. GOI recently published health certificates for live bovine, bovine semen, and embryo imports.

India has further extended the ban on Chinese milk and dairy products until June 23, 2016 or until further notice, whichever is earlier. The notification also prohibits chocolates and chocolate products, candies, confectionary, and food preparations made with fluid milk or dairy solids as an ingredient. The ban has been in place since 2008.

Marketing:

Due to rising incomes, urbanization, and other demographic shifts, demand has increased for more value-added dairy products. Cooperatives and private sector dairies are producing more dairy products to meet this demand, such as milk powder, butter, ghee (clarified butter), paneer (cottage cheese produced from water buffalo milk), flavored milk, ice cream, cheese, yogurt, and ethnic sweets. According to Rabobank, from fiscal year 2012-13 to 2019-20, the market for value-added dairy products is estimated to grow from 21 to 31 percent.

A variety of new products are being introduced to the market. More health conscious consumers are demanding nutritious products such as flavored, sour, and probiotic dairy drinks in lieu of soda and other sweets. Dual income households are also finding less time to prepare food at home, which has increased demand for convenient, ready-made products such as packaged paneer. The demand for packaged, ultra-high temperature milk has also increased because more consumers believe it is safer than fresh milk.

India: Tariff Structure for Various Dairy Products, 2015

HS CODE

ITEM DESCRIPTION

BASIC

CVD

SPL

CVD

TOTAL DUTY w/ 3 % EDUCATION CESS

IMPORT POLICY

04011000 - 04015000

Milk and cream, not concentrated nor containing added sugar or other sweetening matter

30

0

0

30.900

Free San P

04021010

Milk and cream, concentrated or containing added sugar or other sweetening matter

60

0

4

68.272

Free San P

04021020 - 04021090

Milk and cream, concentrated or containing added sugar or other sweetening matter

60

0

4

68.272

Free San P

04022100

Milk and cream, not containing added sugar or other sweetening matter

60

0

4

68.272

Free San P

040229

Other: whole milk, milk for babies, other

30

0

4

36.136

Free San P

04029110

Condensed milk

30

0

4

36.136

Free San P

04029190

Other

30

0

4

36.136

Free San P

040299

Other: whole milk, condensed milk

30

0

4

36.136

Free San P

0403

Buttermilk, curdled milk and cream, yogurt, kephir& other fermented or acidified milk & cream, whether or not concentrated or containing added sugar or other sweetening matter or flavored or containing added fruits, nuts or coco

30

0

0

30.900

Free San P

0404

Whey, whether or not concentrated or containing added sugar or other sweetening matter; products consisting of natural milk constituents, whether or not containing added sugar or other sweetening matter, not elsewhere specified or include

30

0

4

36.136

Free San P

04051000

Butter

40

0

4

46.848

Free San P

04052000

Dairy spreads

40

0

4

46.848

Free San P

04059010-04059020

Butter Oil and Ghee

40

0

4

46.848

Free San P

04059090

Other

40

0

4

46.848

Free San P

04061000

Fresh (unripened or uncured) cheese, including whey cheese & curd

30

0

0

Free San P

04062000

Grated or powdered cheese of all kinds

30

0

4

36.136

Free San P

04063000

Processed cheese not grated or powdered

30

0

4

36.136

Free San P

04064000

Blue-veined cheese and other cheese containing veins produced by Pencilliumroqueforti

30

0

4

36.136

Free San P

04069000

Other cheese

30

0

4

36.136

Free San P

170211

Lactose and lactose syrup containing by weight 99 percent or more lactose, expressed as anhydrous lactose,

calculated on the dry matter

25

12.5

4

47.517

Free

21050000

Ice cream and other edible ice, whether or not containing cocoa

30

0

4

36.136

Free

3501

Casein, Caseinates and other casein derivatives; casein glues

20

12.5

4

41.492

Free

Dairy, Butter

2014

2015

2016

Market Begin Year

Apr 2014

Apr 2015

Apr 2016

India

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

6

6

8

8

0

8

Production

4,887

4,887

5,035

5,035

0

5,200

Other Imports

1

1

1

1

0

1

Total Imports

1

1

1

1

0

1

Total Supply

4,894

4,894

5,044

5,044

0

5,209

Other Exports

10

10

9

10

0

10

Total Exports

10

10

9

10

0

10

Domestic Consumption

4,876

4,876

5,027

5,026

0

5,190

Total Use

4,886

4,886

5,036

5,036

0

5,200

Ending Stocks

8

8

8

8

0

9

Total Distribution

4,894

4,894

5,044

5,044

0

5,209

CY Imp. from U.S.

0

0

0

0

0

0

CY. Exp. to U.S.

0

0

0

0

0

0

Dairy, Milk, Fluid

2014

2015

2016

Market Begin Year

Apr 2014

Apr 2015

Apr 2016

India

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Cows In Milk

50,500

50,500

52,500

52,500

0

54,500

Cows Milk Production

60,500

60,500

63,500

64,000

0

68,000

Other Milk Production

80,000

80,000

83,000

83,000

0

86,000

Total Production

140,500

140,500

146,500

147,000

0

154,000

Other Imports

0

0

0

0

0

0

Total Imports

0

0

0

0

0

0

Total Supply

140,500

140,500

146,500

147,000

0

154,000

Other Exports

0

0

0

0

0

0

Total Exports

0

0

0

0

0

0

Fluid Use Dom. Consum.

57,000

57,000

59,547

59,750

0

62,750

Factory Use Consum.

83,500

83,500

86,953

87,250

0

91,250

Feed Use Dom. Consum.

0

0

0

0

0

0

Total Dom. Consumption

140,500

140,500

146,500

147,000

0

154,000

Total Distribution

140,500

140,500

146,500

147,000

0

154,000

CY Imp. from U.S.

0

0

0

0

0

0

CY. Exp. to U.S.

0

0

0

0

0

0

Dairy, Milk, Nonfat Dry

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

India

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

11

11

25

25

0

50

Production

520

520

540

540

0

540

Other Imports

0

0

0

0

0

0

Total Imports

0

0

0

0

0

0

Total Supply

531

531

565

565

0

590

Other Exports

61

61

50

30

0

30

Total Exports

61

61

50

30

0

30

Human Dom. Consumption

445

445

489

485

0

530

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

445

445

489

485

0

530

Total Use

506

506

539

515

0

560

Ending Stocks

25

25

26

50

0

30

Total Distribution

531

531

565

565

0

590

CY Imp. from U.S.

0

0

0

0

0

0

CY. Exp. to U.S.

0

0

0

0

0

0