THE Federal Board of Revenue has increased regulatory duty on the import of milk and cream, concentrated or containing sugar or other sweetening matter, and whey powder from 20pc to 25pc with effect from June 25.

The increase of 5pc may be seen as too small by those who have been demanding a much higher duty, one of up to 100pc. They include representatives of the dairy sector, mainly dealing with unprocessed milk, and some federal ministers and lawmakers having an interest in livestock farming. They cite examples of other countries where the use of dry milk is being discouraged by charging high duty on their import. For instance, India has imposed a 68pc import duty, Turkey 120pc and Morocco 60pc.

The budgetary measure will considerably affect, among others, children under the age of five, particularly those belonging to the middle class and regularly using infant formula products; as these will now become more expensive. The Baby Food Manufacturers and Marketers Association (BFMMA), which held an emergency meeting, says that the increased duty on imports will have ‘a detrimental impact’ on the industry and ‘compel consumers to bear the brunt.’

Federal Minister for National Food Security Sikandar Hayat Khan Bosan favours heavy duty on the import of milk and whey powder to protect local farmers’ interests

The Association says the new duty is not 25pc but 46pc. One may recall that commerce minister Khurram Dastagir had recently informed the National Assembly that a total of 43pc tax was being collected on the import of milk and whey powder, and not a mere 20pc. Giving the breakup, he said that 20pc was charged under customs duty, 17pc sales tax and 6pc withholding tax on the import of these items.

The BFMMA said, ‘The government thinks that infant formulae products are consumed by the rich alone. It is not so. Considering the malnutrition statistics in a country like ours, the government should make access to such products easier, not harder.’

However, there is no mention in the notification of local companies producing and selling powdered milk. In the last year’s budget, these were subjected to a 10pc sales tax. An FBR official explaining why local powder was being taxed says that if these powders are sold under a brand name in retail packing, only then was sales tax applicable. Powdered milk is covered by the description ‘concentrated milk’ under Customs tariff rules.

Federal Minister for National Food Security Sikandar Hayat Khan Bosan favours heavy duty on the import of milk and whey powder to protect local farmers’ interests. Responding to a calling attention notice in the National Assembly recently raised by a ruling party member regarding import of milk, mostly coming from India, the minister said that the cost of production has increased manifold during the last few years. No one is ready to buy fresh milk at Rs40-45 per kg in the rural areas, he said.

The dairy sector had long been seeking a major increase in regulatory duty on the import of skimmed milk powder and whey powder which happen to be their close rivals. Since the dairy sector keeps losing business to imported milk because commercial buyers prefer the latter as it is much cheaper than fresh milk, the sector wants either a ban or heavy duty on these imports. Recent years saw a rise in dry milk’s imports when some big shopkeepers began using it in the production of confectionery, sweetmeat, biscuits and other dairy-related products instead of fresh milk; as it was cheaper. Though Pakistan happens to be one of the world’s largest milk producers, it spent $341m on the import of dry milk and whey powder in the years 2012 to 2014.

However, despite the fact that the farm gate price of fresh milk is higher than dry milk, it is still very much in demand; a demand that is reportedly increasing by 10pc on an annual basis. But fresh milk producers have been unable to meet the growing demand for production does not exceed beyond 4-5pc per annum, thus leaving ample space for dry milk to enter the market.

Meanwhile, the cost of production of fresh milk has increased over the years because of rising prices of buffaloes, cows and fodder making it difficult for small farmers, who constitute the majority in the livestock sector, to feed their animals. Only farmer-friendly policies, if adopted by the government, can help dairy workers overcome their difficulties. The dairy sector contributes 11pc of GDP, and milk and dairy products account for 22pc of kitchen expenses, compared to wheat which accounts for 12pc. The dairy industry buys milk worth Rs45bn every year from milkmen.

Published in Dawn, Business & Finance weekly, July 4th, 2016