EDITORIAL 1: India and the world in dairy
Context
The competitiveness and efficiency of India’s dairy sector is being questioned as the US under Donald Trump pressures India to open its market to American dairy products.
One way to assess competitiveness is prices
- Take corn (maize) as an example: the farmgate price in the US is about $4.5 per bushel (25.4 kg), which, at an exchange rate of Rs 87 per dollar, comes to around Rs 15.4 per kg for the American farmer.
- In contrast, maize is selling at Rs 22–23 per kg in Indian mandis, with the government’s minimum support price set at Rs 24 per kg.
- This shows that US corn farmers are significantly more price competitive than their Indian counterparts, largely due to much higher productivity—over 11 tonnes per hectare in the US compared to just 3.5 tonnes in India.
- But this isn’t the case with milk.
Price competitiveness in milk
- The US has a Federal Milk Marketing Order (FMMO) system. Under it, processors (“handlers”) have to pay a minimum price for the raw milk they procure from dairy farmers.
- The price is fixed every month for four uniform “classes” of milk: Class I (for sale as fluid/beverage milk), Class II (for making ice-cream, yogurt, sour cream and other soft dairy products), Class III (for cheese) and Class IV (for butter and milk powder).
- In July 2025, the average farmgate price of milk in the US was about Rs 36.7 per litre. This is similar to the Rs 34 per litre that dairies in Maharashtra are paying Indian farmers for the same quality of milk, showing that Indian milk prices are just as competitive as those in the US.
- Compared to Europe, Indian milk is even more competitive. In the European Union, farmers received around Rs 55.6 per litre in July.
- Simply put, the milk prices received by Indian farmers are marginally below that in the US and New Zealand, while substantially lower than what European producers get.
India’s dairy sector
- Milk yields in India are poor by western standards.
- The low yields notwithstanding, the production cost of milk in India isn’t that high because dairying is comparatively labour-intensive: Cows have to be fed and milked multiple times daily, besides being bathed regularly along with removal of dung and cleaning of their sheds.
- In addition, labour is required for planting, harvesting and storing fodder and feed.
- Although dairy farms in the West have significantly automated these operations — through milking machines, forage harvesters and balers, feeding robots, sensor-based cattle health monitoring, hot water high-pressure cleaners and bulk coolers — the low cost of labour makes it still cheaper to produce milk in India.
- Milk has a higher labour cost component relative to corn, soyabean or wheat.
- But, Gujarat Co-operative Milk Marketing Federation (GCMMF) and other Indian dairies show high processing and marketing efficiency, with farmers receiving 55–57% of the consumer price—much higher than the 35% share US farmers get.
- This efficiency comes from streamlined procurement, processing, and distribution, allowing cooperatives like GCMMF to share a larger portion of the retail price with farmers.
The challenge
- India’s price competitiveness in milk, as noted, derives primarily from the low cost of labour. That includes unpaid family labour having few employment avenues outside of agriculture.
- Dairy farmers in India typically aim to cover only their direct costs, without accounting for the value of family labor or owned land, but this approach may become unsustainable as labor becomes scarcer and more expensive.
- Unlike New Zealand’s pasture-based system and the US’s automated farms, India lacks abundant grazing land and faces high capital and energy costs.
Way forward
- The future of Indian dairying may lie in a different model of selective mechanisation, boosting milk yields through genetic improvement and new breeding technologies, and on-farm cultivation of high-tonnage protein-rich green fodder grasses.
- The focus has to be on reducing the cost of milk production so as to maintain the global competitiveness of India’s dairy sector, which cannot be based on cheap labour alone.