Promoting Dairy Exports from India: Emerging Challenges and Strategic Response

Dr. Rakesh Mohan JoshiProfessor and Chairperson

International Projects DivisionIndian Institute of Foreign Trade

New Delhi INDIAand

Project Director, India Africa Institute of Foreign Trade,

Kampala, Uganda

www.rakeshmohanjoshi.com

How Global is the Dairy Industry?

• Only 7% of the milk produced worldwide is internationally traded

• Expected growth in milk production and consumption of dairy products in developing countries would further reduce the ratio to 6% in the next decade

• Thus, the focus of Dairy Industry remains local rather than global at the most regional

January 15, 2013 2Joshi, Rakesh Mohan

Globalization of Dairy Industry

• Growth in International Trade at 3% per annum surpassed the growth of 2% in world dairy Production during the last decade

• This reveals rapidly growing significance of international trade and rising integration of global production patterns and markets

• International Dairy Markets have witnessed a paradigm shift from being supply driven to become demand driven getting increasingly responsive to market signals and consumer preferences rather than merely by excess production and depressed prices

January 15, 2013 3Joshi, Rakesh Mohan

Growing Significance of Developing Countries in International Dairy Trade

• The traditional dominance of developed countries in the world dairy markets seems to be waning

• World milk production is projected to increase at an annual average of 1.9 % during to the next decade compared to 2.1% in the previous decade

• 73% of the additional milk production in the next decade is likely to come from developing countries out of which India and China would account for 38% of the global gains

January 15, 2013 4Joshi, Rakesh Mohan

January 15, 2013 Joshi, Rakesh Mohan 5

CountryAverage Bound (%)

Average Applied (%)

Canada 218.5 126.6Japan 118.1 93.3EU 50.5 48.3India 65 33.7US 19.8 20.3

Developed Countries Still Use High Level of Protectionism for their Dairy Industry

Source: WTO Tariff Profile, WTO , 2011

Cross Country Comparison of Tariff Structure for Dairy Product (2011)

World Milk Production(in Million Tons)

India’s milk production to equal that of

whole EU by 2021

149

117

87

4332 33 31

1711 11 11 9

158166

103

60

36 38 38

2413 17 12 11

0

20

40

60

80

100

120

140

160

180

European Union

India USA China Russia Pakistan Brazil New Zealand

Ukraine Argentina Australia Mexico

2009-11 2021

Production and Per Capita Availability of Milk in the World

17 20 22

31.6

53.9 55.7 58

80.6

92.5

102.6107.9

112.2116.4

130 126112

128

176 178182

217

233

251 260266

273

0

20

40

60

80

100

120

140

0

50

100

150

200

250

300

1950-51 1960-61 1970-71 1980-81 1990-91 1991-92 1992-93 2000-01 2004-05 2006-07 2007-08 2008-09 2009-10

Per C

apita

Ava

ilabi

lity(

gms/

day)

Prod

uctio

nh (M

illio

n TO

nnes

)

Production (million Tonnes) Per Capita Availibility (gms/day)

World Milk Yield(Tons/ Head)

9.4

6.25.9

4.8

3.6

4.5

3.7

3.22.8

1.31.2

1

11.4

7 6.5

5.9

5.14.8

4.34

3.4

1.4 1.31.2

0

2

4

6

8

10

12

2008-10 2020

World Dairy Export(in US $ Billion)

28 2732

39 4244

57

66

52

64

75

0

10

20

30

40

50

60

70

80

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

January 15, 2013 9Joshi, Rakesh Mohan

World’s Major Dairy Exporting Countries

New Zealand19%

EU 2738%

Australia16%

USA5%

Belarus2%

Argentina3%

Rest Of the World17% New Zealand

27%

EU 2724%

Australia9%

USA8%

Belarus5%

Argentina3%

Rest Of the World24%

2000 2009

January 15, 2013 10Joshi, Rakesh Mohan

Composition of World Dairy Exports

Cheese and curd40%

Milk and cream, conce

ntrated or sweetened

30%

Milk and cream, not

concentrated nor

sweetened10%

Butter and other milk-

fats 10%

Buttermilk and yogurt

6%

Whey and natural milk

products4%

Cheese and curd40%

Milk and cream, concentrated or sweetened

26%

Milk and cream, not

concentrated nor

sweetened11%

Butter and other milk

fats 11%

Buttermilk and yogurt

6%

Whey and natural milk

products 6%

2001 2010

January 15, 2013 11Joshi, Rakesh Mohan

0100020003000400050006000700080009000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

US$

Per

Ton

(In nominal terms)

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

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2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

US$

Per T

on

(In real terms)

Trends in International WMP and SMP Prices

0500

100015002000250030003500400045005000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

US$

Per

Ton

(in nominal terms)

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1990

1991

1992

1993

1994

1995

1996

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1998

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2001

2002

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2004

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2007

2008

2009

2010

2011

2012

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2014

2015

2016

2017

2018

2019

2020

US$

Per

Ton

(in real terms)

Trends in International Butter Prices

0500

100015002000250030003500400045005000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

(in nominal terms)

US$

Per

Ton

0500

100015002000250030003500400045005000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

(in real terms)

US$

Per

Ton

Trends in International Cheese Prices

India’s Dairy Trade(in US $ Million)

3 4

411 16

40

25

26 51

147

109

156

270

89

115

75

1 8 10

42

145

13 2713

8

22 1415

63

169177

0

50

100

150

200

250

300

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

EXports Imports

Composition of India’s Dairy Exports

Milk and cream, concentr

ated or sweetened

83.51%

Whey and natural milk products nes

2.79%

Milk and cream, not

concentrated nor sweetened

0.03%

Butter and other fats and oils derived from

milk12.68%

Buttermilk and yogurt0.15% Cheese and

curd0.84%

2001 2011

Butter and other fats and oils derived from

milk64.6%

Milk and cream, concentr

ated or sweetened

15.3%

Cheese and curd11.1%

Milk and cream, not

concentrated nor sweetened

7.2%

Buttermilk and yogurt1.1%

Whey and natural milk products nes

0.8%

Composition of India’s Dairy Imports

Milk and cream, not

concentrated nor sweetened

0.19% Milk and cream, concentrated or sweetened

18.21%

Buttermilk and yogurt0.49%

Whey and natural milk products nes

19.61%Butter and other

fats and oils derived from

milk41.56%

Cheese and curd19.95%

2001 2011

Milk and cream, concentr

ated or sweetened

83.0%

Whey and natural milk products nes

11.1%

Cheese and curd4.2%

Butter and other fats and oils derived from

milk1.3%

Buttermilk and yogurt0.2%

Milk and cream, not

concentrated nor sweetened

0.2%

Direction of India’s Dairy Imports

2001 2011

New Zealand15%

Australia21%

France34%

Germany1%

United States of America

1%

Denmark12%

Netherlands3%

United Kingdom5%

Nepal4%

United Arab Emirates

1%Japan0% Others

3%

New Zealand30%

Australia20%

France11%

Germany5%

United States of America

3%

Denmark2%

Netherlands1%

United Kingdom1%

Nepal1%

United Arab Emirates

1%

Japan1%

Others24%

Direction of India’s Dairy Exports

United Arab Emirates

23.4%

Egypt3.4%

Nepal1.2%

Singapore1.0%

Bangladesh26.9%

Oman6.9%

Saudi Arabia2.9%

Australia0.1%

Morocco0.1%

United States of America

2.1%

Others32.0%

2001 2011

January 15, 2013 19Joshi, Rakesh Mohan

United Arab Emirates

23%

Egypt15%

Nepal9%

Singapore7%

Bangladesh6%

Oman4%

Saudi Arabia4%

Australia4%

Morocco3%

United States of America

3%

Others22%

INTERNATIONAL DAIRY TRADE AND CHALLENGES FOR INDIA

• Growth in milk Production not keeping pace with surge in Demand is

expected to rise milk imports in coming years

• Gradual opening up of Indian market for imports and with the entry of MNCs

in the dairy sector, competition in the high value added segment and

branded dairy products has rapidly intensified in the recent years and is

likely to grow with their fierce marketing strategies, operational efficiencies

and global supply chain management.

• India as a nation is tend to loose more by importing value added and

branded milk products than basic milk constituents such as butter oil or milk

powders

January 15, 2013 20Joshi, Rakesh Mohan

Bring Innovation to Compete in International Markets

– Innovation across the dairy value chain

– Increase emphasis on value added products, consistently Explore Product

Differentiation and build brands that have capacity to compete and survive

the fiercely growing competition from multinational players

– Invest in R&D, develop New Products, plan Product Obsolesce to Pave Way

for New Products

– Develop a few national brands on the pattern of Amul and taking them

internationally

– Resort to competitive marketing strategies

– Employ innovation to enter international markets including setting up

overseas operations and internationalization of Research and off-shoring

dairy servicesJanuary 15, 2013 21Joshi, Rakesh Mohan

January 15, 2013 22Joshi, Rakesh Mohan