THE air is abuzz with concerns of dairy product imports ostensibly hurting the local dairy sector.

Farmers protested by spilling milk on Constitution Avenue during the budget session and won a 25pc tariff protection, in addition to the existing 20pc customs duty, on the import of milk and whey powder. These are consumed as infant food and used as raw material by the 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 other leading milk producing countries might be necessary, but it is uncertain if it would be sufficient to ensure a rise in farm income. It’s prudent to identify the target before pulling the trigger.

With an annual production of 41,000m tonnes milk equivalent (MTME), Pakistan ranks the 4th in global milk production after India, USA and China; yet, ironically it is a 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 the nutritional dimension of food security and on the production side provides livelihood to nearly 8.5m households.

The value of milk produced annually (around Rs 3tn) is more than the combined value of the major food crops — wheat, rice, sugarcane and maize. Milk production has important spin-offs for job creation — each 10-20 litres of milk marketed per day, according to the FAO, creates one additional off-farm job in developing countries.

The increase in protection to the dairy sector at par with other leading milk producing countries might be necessary, but it is uncertain if it would be sufficient to ensure a rise in farm income

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 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 by global comparison. While FAO Dairy Price Index shows a 42pc decline in world dairy prices during the last two years, the price of milk in Pakistan has increased by 6pc.

Pakistan’s ex-farm milk price of $60-70cents per kg is higher than almost all other top milk producing countries — New Zealand 26cents, Germany 27cents, Brazil 31cents, France 31cents, Russia 34cents, USA 38cents, India 45cents and China 55cents.

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 income of 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 62pc and 34pc compared with the global composition of 13pc and 83pc respectively.

Secondly, 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 that of the developed world. According to FAO statistics, 4m German cows produce around 3 times more milk than 10m 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, a highly fragmented milk production base diminishes farm profitability. The average holding per household in Pakistan is less than 3 animals. Around 80pc of the milk is produced in rural areas, 15pc in peri-urban and 5pc 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 of 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 commercialised products in the agriculture sector. More than 95pc of the produce is consumed unprocessed through informal marketing chains — no quality checks, no standardisation 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 20pc wastage of produce.

To conclude, the cure to the enervation of the dairy sector lies in a comprehensive remedy instead of price palliatives: increased productivity through development of high yielding breeds, economies of scale through defragmentation of small farms into cooperatives, enhanced processing of milk through the 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 devitalises the sector to fend for itself in a highly competitive world. The trend in farm-gate milk prices shows that dairy imports are not driving down the farm-gate milk prices but merely bridging the supply-demand gap. n

The author is joint secretary (Exim) ministry of commerce.

Published in Dawn, Business & Finance weekly, August 29th, 2016