Policy paper import of milk & whey powder in pakistan (2)

Center for Applied Policy Research in LivestockUniversity of Veterinary & Animal Sciences, LahoreSyed Abdul Qadir Jillani (Out Fall) Road, Lahore - Pakistan

[email protected] | www.uvas.edu.pk

Policy Paper

IMPORT OF MILK & WHEY POWDERS IN

PAKISTAN

Table of Contents

A. INTRODUCTION......................................................................................................................1

Background.....................................................................................................................1

B. MILK POWDER AND WHEY POWDER IMPORTS................................................................2

1. Import of SMP and WP..............................................................................................................2

1.1. Changing Dynamics of Dairy Industry:............................................................................2

1.2. Powder Import Correlation with International Prices........................................................3

1.3. Powder Imports from India..............................................................................................5

2. Impact of Powder Import............................................................................................................5

2.1. Impact on farm gate prices Vs consumer prices................................................................5

2.2. Impact on small farmers..................................................................................................6

2.3. Impact on investments:....................................................................................................6

2.4. Overall Economic Impact:...............................................................................................7

C. EXAMPLES FROM OTHER COUNTRIES..............................................................................7

How India Safeguard its local dairy farming?...................................................................8

How Turkish Dairy Sector was revolutionized?................................................................8

D. RECOMMENDATIONS & WAY FORWARD..........................................................................9

Potential Benefits of Enhancing Import Duty...................................................................9

E. REFERENCES........................................................................................................................10

University of Veterinary & Animal Sciences, Lahore | www.uvas.edu.pk

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A. INTRODUCTION

BackgroundPakistan is an agricultural country with World’s one of the best irrigation systems, fertile land

and versatile seasons. Agriculture sector contributes about one fourth in country’s GDP and is

believed to be the backbone of the rural economy as it provides employment to 45% workforce

of the country. Livestock is an integral part of the agriculture sector and contributes 55.1% of

the agricultural value added, and approximately 12% in the national GDP. Milk is by far single

most commodity of livestock sector and the value of milk alone exceeds combined value of

wheat, rice, maize and sugarcane in the country.More than 8 million farming families are

associated with livestock sector and majority of them are smallholders and landless. This depicts

the critical dependence of 40 to 50 million rural people on the livestock sector. Selling milk for

meeting day-to-day needs has become a visible phenomenon in the country during last two

decades and hence livestock farming has become vital in generating instant cash flows for the

rural population.

Historically, majority of the livestock farming has been fragmented into smallholders smaller

herd sizes (1-6 animals). As a result of various dairy development initiatives since 2005,

tremendous improvement had been witnessed in dairy farming where commercial and corporate

sector in dairy farming emerged. The country has seen phenomenal growth in investment in

dairy farming during last one decade. The emerging commercial scale farmers had positively

influenced the whole livestock farming sector in terms of transforming practices, sharing modern

knowledge and skills and attracting international service providers. The trend of investment into

the dairy farming continues until 2013 when this growth started declining and has currently been

halted. This has brought tough times to the farmers especially the smallholders.

The livestock farmers have been facing various issues for last few years, that havenot only

decelerated the growth in this sector but have eventually put the livelihoods of 40 to 50 million

people at stake. One of the major issues that has adversely impacted livestock sector is the


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unchecked import of milk powder and whey powder in the country as the duty regime is just

20% for such imports that make it easy to get it dumped in Pakistan.

B. MILK POWDER AND WHEY POWDER IMPORTSIt is pertinent to mention here that import of milk powder and whey powder has severely shaken

the dairy sector stakeholders particularly the producers / farmers. It's worth-mentioning that

Pakistan is considered third largest milk producing country in the world with nearly 50 billion

liters of annual production. However despite of having one of the largest animal populations

base and huge local production of milk, the import of powders indicates the manipulation in the

value chain resulting in net economic loss both for producers and consumers. In short, the dairy

farming sector is at the verge of devastation due to influx of Skimmed Milk Powder and Whey

Powder (SMP & WP) from across the globe. The use of SMP&WP in the dairy processing

industry, dairy related products, biscuits, sweet making, confectionary industry and tea

whitening segment has deprived the local farmers from getting right price of the milk and

eventually triggering the discouraging wave into the developing dairy farming sector.

1. Import of SMP and WPAccording to the United Nations COMTRADE database, Pakistan imported 35 million Kgs

milk powder in 2012 worth 102.1 million $, 22 million Kgs in 2013 worth 70.8 million $

and 34 million Kgs in 2014 worth 117 million $. At the same time, Pakistan imported 19.5

million Kgs, 18.3 million Kgs and 20.2 million Kgs of whey powder in 2012, 2013 and 2014

worth 13.4 million $, 15 million $ and 16.9 million $ respectively.

1.1. Changing Dynamics of Dairy Industry:

From 2007 onwards there has been a shift in focus of Pakistani dairy processors from

selling milk to selling recipe products - made out of SMP&WP and Vegetable fat etc.

These products are generally called Tea Whiteners and Dairy Liquids.


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According to estimation by dairy industry experts, in 2014, the share of recipe

products (other than milk) in liter-age term has gone up to 59% in total UHT sales

while plain white milk is only 41%. Since these recipe products are made using

SMP&WP and vegetable oils; for dairy processor the cost of production of these

products is far below the raw milk prices, which ultimately deprive dairy farmers of a

better price for their raw milk. The below graph represents the historical growth in

UHT sales (million liters annually) and depicts that how the share of other than milk

products have substantially increased.

1.2. Powder Import Correlation with International Prices

It is often propagated that the import of powders is linked with demand and supply

gap in the country, however fact of the matter is that import of powders has a clear

linkage with prices in international market, i.e. when prices are low in international


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market, the import increases substantially and vice versa. For example when price was

low at 2300 Euro per Ton in 2012, about 34 Million Kgs of Skimmed Milk Powder

(SMP) was imported in Pakistan while in 2013 when price went up to 4200 Euro Per

Ton, the import of SMP decreased to 22 million Kgs. In 2014, the price again went to

the lowest 2000 Euro per Ton, and the SMP import again jumped to 35 million Kgs.

The below chart further clarifies the direct correlation of import quantities and

international prices both for milk powders and whey powders.


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1.3. Powder Importsfrom India

During last few years, import of powder from India has drastically increased in

Pakistan. Most importantly, it is estimated that a handsome share also gets smuggled

from India to Pakistan which doesn’t have any official recording.


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2. Impact of Powder ImportIn last few years import of SMP especially from India has increased drastically and some of

the local milk sellers have started to fabricate the milk using SMP&WP, fertilizers and other

prohibitive ingredients. Confectionary and sweat makers have shifted to cheaper and low

quality SMP&WP replacing local raw milk.The fluctuating prices of milk powders in

international market coupled with subsidies and other factors and complemented with low

percentage of import duty (20%) results into dumping of these powders in Pakistan.

2.1. Impact on farm gate prices Vs consumer prices

Over the years the farmer is deprived of the right price of milk considering the end

consumer prices. In last five years, the increase in Farm Gate Prices to farmers has

been less than Rs. 10 per liter while per liter consumers price of UHT milk has gone

up by minimum Rs. 40; for a pouch of pasteurized milk Rs. 25; for bottled or carton

packed pasteurized milk by Rs. 45. The Price of both tea whitener and dairy liquids

hasgone up by Rs. 15. This clearly shows that despite of the stagnant raw milk prices,

no benefit has been passed on to the consumers. It is unfortunate that the incremental

difference for the consumers has not yielded any benefit for the producers as well.


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2.2. Impact on small farmers

In last five years, the cost of production for a dairy farmers has increased at an

average of 10 to 15% per annum, while farm gate price increased by less than 5%.

Milk purchasers are paging farm gate prices with the milk fabricated by use of

SMP&WP. Some of the milk purchasers have reduced their milk procurement

drastically as they use SMP&WP instead. This whole situation has put the livelihoods

of millions of families at stake. This severely affects the local livestock farmers whose

majority is small-scale, landless and is completely dependent on milk sales. It is

important to realize that the discouraged farmers are leading towards evaporation of

livestock farming.

2.3. Impact on investments:

In last two three years many commercial farms sized 50-300 have closed down

depriving the investment opportunities. At the same time, no new corporate group

hasmade investment into dairy farming since 2013. Below graph represent how the

corporate sector investment in dairy farming has decelerated and is stagnant. Planned

investments in expansion of existing dairy farms have been withheld and existing

farms have entered into survival war mode


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2.4. Overall Economic Impact:

If the situation continues and necessary actions are not taken, this is very soon going

to lead Pakistan into deficit of food items including milk and meat, question-marking

the food security of the growing population in the country. On the other hand it will

lead into massive gradual unemployment of the rural population and eventually result

in rural to urban migration. This chronic situation, if not given due attention right

now, can badly disturb the overall equilibrium of the Pakistani society.

C. EXAMPLES FROM OTHER COUNTRIESExamples from other countries can significantly help in understanding the approach towards this

issue. Below are examples from India and Turkey.

How India Safeguardits local dairy farming?In order to safeguard the interest of local dairy farmers in India, the Government of India

has imposed 65% import duty on the powder imports besides devising strict quality and

hygiene parameters that importers have to comply with. This step has significantly

helped Indian dairy farming sector to boost up and bring prosperity in rural areas. It's

also important to mention that farm inputs are also subsidized in India and are much

cheaper for the farmers. Below is a comparison of various farm inputs both in India and

Pakistan in Pak Rs.

As a result of these steps, India's export of powder increased from 0.18 million Kgs in

2011 to 152 million Kgs in 2013.


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How Turkish Dairy Sector was revolutionized?Turkey decided to revolutionize its dairy sector and imposed 180% import duty on milk

powders. As a result of this step, huge investments were made in dairy farming locally as

much as that over 1.2 million animals were imported between 2009 and 2013.

Subsequently, the milk powder imports dropped to almost negligible quantities. Below

graph reveals the aforementioned phenomenon.

D. RECOMMENDATIONS& WAY FORWARDIt is high time that the policy makers realize the severity of the issue and take necessary steps to

avoid severe long term consequences. It is suggested that Govt should immediately increase

import duty on milk and whey powder to 100% to ensure that local milk production gets boosted

and assure long term food security in the country.

Potential Benefits of Enhancing Import DutyIt is anticipated that enhancing import duty on milk and whey powder shall yield

following benefits.


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- It will revive the local dairy farming sector leading towards rural economic

development and poverty alleviation.

- Investment in commercial and corporate sector will resume and bring more

employment opportunities

- Local milk production will boost up ensuring medium to long term food security

while enhanced sustained supply of milk will also ensure the prevention of potential

milk deficit as well as potential inflation in long term.

- Milk is considered one of the most nutritious food items. Local milk boosting will

ensure addressing the chronic issue of malnutrition in children that has already

reached to the dangerous levels. It is also suggested that school milk programs shall

be initiated with focus on regional production and consumption. This on one hand

will help in providing nutrition to the kids while on the other hand it will help in

economic development of the rural areas.

- Adulteration and malpractices in the dairy value chain will be curtailed ensuring safe

and healthy milk for the consumers at affordable price.

E. REFERENCES- United Nations Comtrade

- International Trade Statistics

- Duty Calculator

- Mother Dairy India

- Indian Custom Tariffs

- CLAL Italy

- Pakistan Dairy Association

- Corporate Dairy Farmers Association

- Market Sources


11University of Veterinary & Animal Sciences, Lahore | www.uvas.edu.pk

Policy paper import of milk & whey powder in pakistan (2)

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